By Cory Howes
You have worked hard for years, have family members and friends you care about, and have approached a time in your life when estate planning sounds like something you should do, but you are not exactly sure why. You may feel that you are not wealthy enough or not old enough to bother or care. Or you may already have a will and feel that you are all set on that front. Whatever your current position, consider the following common misconceptions about estate planning.
Estate planning is for wealthy(ier) people.
This statement is patently false. Anyone who has survived to age eighteen and beyond has likely accumulated a few possessions that are of some monetary or sentimental value. While possessions like your home, your car, and financial accounts are self-evident assets, that collection of superhero figurines or your iTunes library also deserve proper attention. There is no minimum asset value required to justify having a will, especially since there are many low-cost options.
Estate planning is for old(er) people.
This is another notion that’s completely false. Tragedy can strike at any moment, and it is best to have your affairs in order so as not to put your loved ones in a financial or bureaucratic bind while they are grieving. Young parents should ensure that proper guardians are in place to take care of their children if they are no longer around, lest the children end up with the most irresponsible member of the family or, worse, a complete stranger.
Estate planning means having a will.
You guessed it; this one’s also false. Having a will is smart because it puts you in charge of the disposition of your assets. A will allows you to pick your executor, designate the guardians for your minor children, and name any individuals and charitable organizations as beneficiaries of your estate. If you were to die without a will (intestate), the law of the state where you reside at your death would govern who receives what part of your estate, who administers your estate, and who takes care of your children. There are some situations where state law may override the provisions in your will (e.g., a spouse’s elective share), but for the most part, you are in the driver’s seat.
However, a will is only one tool in the estate planning toolbox. There are other vehicles that allow you to remain in control of your possessions and family’s future during life and upon death. Depending on your situation, a will alone may not be the most efficient or the most cost-effective means to achieve your goals.
Upon your passing, your will has to go through probate, a process whereby a court reviews your will and determines its validity. Probate can be a lengthy and often costly process in many states and can become even lengthier if a will is contested (e.g., on the grounds that someone coerced or cajoled their way into an inheritance). The delay in disposition of your assets and the accompanying legal costs may put your family members in financial straits. If your goal is to ensure that your survivors’ cash flow is uninterrupted after your death, it would be wise to incorporate a trust or a life insurance policy into your estate plan. These assets are considered “non-probate” – they pass outside of your will.
There are other non-probate assets that may constitute a part of your estate. For example, a joint tenancy arrangement on your home, IRA, and payable-on-death (POD) or transfer-on-death (TOD) accounts designate specific beneficiaries upon your death, and the assets pass to them without the delay and cost of the probate process. If your will provides for a different beneficiary of your IRA account or another non-probate asset, it will be superseded by the beneficiary designation form on file with that account’s or asset’s administrator. Therefore, it is wise to review all of your beneficiary designations periodically, but certainly upon life-altering events like marriage, birth of a child, or divorce.
In addition, a will is only effective upon death. It is also important to plan for things that can happen during your life. For example, you should have a financial power of attorney to appoint someone to manage your finances if you are unable to due to incapacity/disability. You should have a healthcare power of attorney to appoint someone to make medical decisions for you if you are unconscious or otherwise unable to make those decisions for yourself. If you have minor children, you should appoint guardians in the event that both parents are incapacitated and unable to care for your children (a Will is only effective at death, not incapacity. Thus, there are many considerations beyond a will that should be included in your estate plan.
You are neither too young nor too poor to engage in estate planning. Just remember that a will may be necessary, but it’s not the only means to plan your estate in an efficient and cost-effective manner. At the Forrest Firm, we take tremendous pride in helping families make informed decisions to reach their life goals through estate planning. Please contact me if you have any questions or to get started creating your own plan.