Many people, especially those who are still young and unattached, do not think that they need to have an estate plan. If you are like most people, you hear the phrase “estate planning” and think that that is only something that old people need to worry about. This is a terrible misconception. The truth of the matter is, it is important for all adults – young or old, married or unmarried, children or no children – to have at least a basic estate plan. Creating an estate plan can be a difficult task to accomplish, as it forces you to face your own mortality; however, the importance of having your estate – big or small as it may be – in order will provide both you and your loved ones with peace of mind.
I don’t have a lot of stuff, do I really need to have an estate plan?
YES! It may not seem like you have a lot, but if you stop and think about it, you probably have more than you think. A bank account. A car. Life Insurance. A retirement plan. What will happen to all of these things when you are gone? That is exactly what an estate plan helps you to figure out. Having a well-planned estate includes much more that a will. It involves creating a plan for the effective disposition of all of your property.
OK, I get it, an estate plan is something I need to do, but what exactly is an estate plan?
There are a certain documents that, regardless of your situation in life, everyone need. These documents are: a will, a power of attorney, and a medical directive.
A will is a legal document that disposes of a person’s tangible personal property. A will also appoints the person who will be responsible for carrying out your wishes. This person is generally called the executor or personal representative.
It is important to note, however, that a will can only dictate the disposition of probate property. This does not include things such as: life insurance, bank accounts, investments, and retirement accounts. These assets pass outside of probate to a beneficiary named by you.
Without a will, your property will be distributed according to state law. Not only may this result in the disposition of your property in a manner not in accordance with your wishes, it may also leave your estate more vulnerable to estate taxes depending on the value of your estate.
If you have minor children, one of the most important reasons to have a will is to appoint a guardian. The guardian is the person who will care for your children if both parents were to pass away. If a guardian is not appointed, the court will appoint a guardian. This may result in the selection of a guardian you would not have chosen, and will result in additional time, stress, and money.
A power of attorney allows you to name an individual to act on your behalf with regard to financial transactions in the event you become incapacitated. In the unfortunate event that you become incapacitated, having a power of attorney already in place will reduce the time, cost and anxiety associated with having someone appointed by the court. With a power of attorney you are able to choose a person you know and trust to handle your financial affairs in the event you are unable to. Furthermore, a power of attorney takes effect immediately, so there will be no delay in the handling of your finances. A power of attorney may be general or limited, meaning you will be able to dictate the scope of power granted in the power of attorney.
A medical directive is a compilation of a couple of documents that spell out your desires in the event you become unable to voice your own desires regarding medical care. Someone you are close with and knows your medical wishes should be named as your health care proxy. This person will be able to make decisions regarding your medical treatment in the event you are unable to do so yourself. A living will may direct that life support be withdrawn if you are in a permanent vegetative state
I have an estate plan, now I never have to worry about it again. Right?
WRONG! It is important to review your estate plan every several years to ensure that it still accurately reflects your wishes. Furthermore, laws change and may affect your estate plan. This is especially an issue in the context of estate taxation. These laws tend to change frequently and could dramatically affect your estate plan. Contact your attorney every few years to see if there have been any changes in the law since you last spoke that may impact your existing plan.