When is the right time to start estate planning? The short answer is now! Many people don’t begin to think about estate planning until retirement age. If you are a millennial or Gen Z, you might feel like you’re too young, but that’s not the case. Whether you’re just starting out or an established professional, single or have a family, focused on paying off debt or building assets, having an estate plan is important to ensure your wishes are carried out if something happens.
Here is a guide to the important documents you’ll need to get started with your estate planning.
Medical Power of Attorney: This document allows you to give another individual legal authority to make health care decisions for you in the event you become incapacitated. The named person should be someone you trust to carry out your healthcare wishes and, most importantly, be available to do so in an emergency. Select a person that lives near you to be your power of attorney, if possible. In addition, prepare a living will, or advance health care directive. This is a document that allows you to state your wishes directly to your doctors regarding which services you would like provided or withheld.
Financial Power of Attorney: This document gives another individual the legal authority to make financial decisions and act on your behalf, such as paying bills, opening accounts and making financial transactions for you. Without it, a court order may be necessary for your family or loved ones to gain the authority to handle such affairs.
Either power of attorney can take effect immediately or at the time of your incapacity but must be established while you still have your mental faculties. You cannot create a durable power of attorney after you become incapacitated.
Will & Testament: A will is a legal document that serves as a complete letter of instruction to communicate your wishes after death. Without a will, the state in which you reside decides how to distribute your assets to your beneficiaries according to its laws. This is known as dying “intestate” and the resulting settlement process may not produce the results that you would prefer for your survivors.
A will generally includes:
- Designation of an executor, who carries out the provisions of the will. Being an executor is an honor, but it can also be a lot of work and it helps to have some knowledge of finances, so consider that in your decision.
- Beneficiaries, those who are inheriting assets that are not designated by other means, e.g., joint ownership, beneficiary designation or trust.
- Instructions for how and when the beneficiaries will receive the assets.
- Guardians for any minor children. Choose guardians who will be up to the responsibility of raising your children and who share your values and beliefs.
Your executor or personal representative will ensure that your assets get distributed during the probate process. Probate is a legal process for settling an estate, whether one has a will or not, and is a matter of public record. Probate can be a timely and expensive process but can be avoided. The most effective way to avoid probate is to incorporate a revocable living trust into your plan.
An asset that allows the owner to name a beneficiary will also avoid probate. For example, retirement accounts, IRAs, HSAs and life insurance go directly to the beneficiaries you choose without going through probate. You can also add beneficiaries to your home and vehicles in some states. Jointly owned accounts with rights of survivorship may delay probate but will not avoid it if the account survives both of you.
Estate planning may sound like a lot of work. However, if you think it will be a hassle now to set up a plan, imagine what it will be like for your loved ones if you become incapacitated or die without a plan in place. Start by working with a licensed estate planning attorney to execute at least these basic documents. Find a CERTIFIED FINANCIAL PLANNER™ professional at LetsMakeAPlan.org to tie it all together. The time to act is now!