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Estate planning is not a priority for most people. It is usually one of those “I’ve got time – I’ll do it later” chores. Why? There are many reasons, the most common is that no one wants to think of his or her own mortality. This is fine as long as you do not have children or others who depend on you financially.
Estate planning can encompass much more than just a will or trust, and powers of attorney. It can also include issues such as down-sizing a home, choosing an assisted living facility, social security and Medicare planning. Many of these issues are inter-related with wealth planning and preservation. And depending on your stage in life, one issue may be more important than another. For example, when a person is in his or her 20s, 30s and 40s, the issue of wealth accumulation has a higher priority than say wealth preservation because he or she has a longer employment horizon than when that same person is in his or her 50s.
No matter what stage of life, it is important that you have basic estate planning documents – will, powers of attorney, and an advance medical directive. These documents let your loved ones know what you want in the event of your disability or death. You really should take the time to have these documents prepared so as not to burden your family. Let us begin with the most common document which disposes of your real and personal property in the event of your death – the will.
A will is a legal document in which you detail who is to receive your “stuff” after you die. It can be as simple as “My nephew John Smith is my sole heir” to something as complicated as identifying many different friends, relatives and charitable organizations who are to receive your personal possessions, real estate, and cash. Most wills are somewhere in the middle. But how do you figure out who gets what?
First, you must gather together all of the documents which represent your “stuff” such as deeds to property, titles to motor vehicles, life insurance policies, financial institution account statements, pension benefit election forms, and the like. These documents help you figure out exactly how much cash and cash-equivalent assets to which you are entitled.
Next, make a list of personal property (pictures, furniture, firearms, etc.) which has significant monetary or sentimental value to you. By making the list, you really consider what you have and who should receive it. This process also helps you ensure that you have sufficient insurance coverage – but more on that topic later.
Next, identify family, friends, and charitable organizations you wish to remember in your will – these individuals and organizations are called your beneficiaries. Also consider who you would like to name as an alternative beneficiary in case the primary beneficiary pre-deceases you. By naming an alternate beneficiary, you eliminate the need to update your will each time a primary beneficiary pre-deceases you. Once you have identified all of your “stuff” and who is to receive your “stuff” after you die, you need to decide who will carry out your wishes. This person is called the executor. The executor can be a friend, relative or a corporate entity such as a bank’s trust department. The important point to remember is to notify the individual or institution to confirm that the individual or entity you choose will accept the position of executor upon your death. It is also a good idea to name an alternate executor, especially if you name a spouse or other relative. Like the scenario with respect to beneficiaries, an individual named as executor may pre-decease you, and by naming an alternate you again eliminate the need to update your will.