A financial plan includes an IRA or 401(k), a savings account for quick access to cash, life insurance, and investments. There is a glaring oversight when most people plan for their financial future: an estate plan. Not having an estate plan could wind up costing you and your loved ones lots of money.
Since April is Financial Literacy Month, it’s a good time to get into things you should do when it comes to planning your financial future. A survey by Marcus by Goldman Sachs found that Americans would rather do anything but deal with their finances, like wash the dishes (51%), go to the doctor (36%), and give up dessert (31%). So, let’s try to get your finances – including estate planning – at the top of the list.
Related Article: Estate Planning Procrastination
Why Do I Need an Estate Plan?
While an estate plan doesn’t earn money, having one sure can save it! It also helps you and your loved ones avoid a ton of stress and heartache.
A Will, a Trust, and a Power of Attorney are vital estate planning documents that provide for the future needs of your family and loved ones. Let’s take a look at them:
1. Will – You’ve worked hard for what you have. A Will lets you preserve your wishes of what to do with your assets when you die. If you want your home, money, property, stocks, or things of value to go to your loved ones, a Will is the legal road to make that happen.
List the people, organizations, or charities – known as the beneficiaries – you want to receive your assets when you pass away. You can specify who gets what and when. You appoint an executor, also known as a personal representative, to manage your estate after you pass and follow the instructions you set in the Will.
If you have minor children, what will happen to them if you and your spouse pass away, or if you are a single parent and you are suddenly incapacitated or die? A Will allows you to name a guardian to take legal custody of your children, ensuring they will be cared for.
Do you have cryptocurrency and NFTs (non-fungible tokens)? Notate in your Will you are leaving these investments to named beneficiaries and that you are including a digital asset list that provides access information. The digital asset list is for your executor’s eyes only.
Related Article: Including Cryptocurrency and Digital Assets in Your Will
2. Trust – This is a great tool to help the financial future of your loved ones. Placing a home or money in a Trust allows these to go directly to the beneficiary you named upon your passing. No probate. No hassles.
There are two main types of Trusts: A Revocable Trust and an Irrevocable Trust.
A Revocable Trust allows you to make changes during your lifetime. So, if a grandchild enters your life, you can add him or her as a future beneficiary. With this Trust, you still manage the assets in it and serve as the trustee. You must name a successor trustee who would step in upon your incapacity or passing to distribute the assets.
When you place an asset into an Irrevocable Trust, you no longer own it or control it; the Trust does. It cannot be revoked or amended once it is created.
The trustee you name oversees the Trust. This Trust can have tax benefits, particularly with regard to estate tax, since this type of trust is not subject to estate taxes.
Related Article: Tax Implications of Creating a Trust
3. Power of Attorney – If you cannot manage your finances, your Power of Attorney can. If you become suddenly ill or are going away on an extended trip, your Power of Attorney will take care of your financial affairs. This person has the legal authority to act on your behalf to pay bills, manage your business, and make legal decisions.
You can set limits on the appointee’s powers or grant unlimited authority. A Durable Power of Attorney can serve after you become incapacitated and his/her authority stays in effect until it is revoked or you die.
Other Estate Planning Documents You Should Have
A Health Care Proxy is another important estate planning document you need, and if you have pets, you may consider a Pet Power of Attorney and a Pet Trust, as well.
- Health Care Proxy – In the event you become seriously ill or incapacitated, where you cannot make your own medical treatment choices, your Health Care Proxy can. The person you choose has legal authority to make decisions and carry out your healthcare wishes.
- Pet Power of Attorney – Let’s not forget about our beloved special companions! You can appoint someone as a Power of Attorney to make decisions for your pet. Suppose you go away and leave your pet with a sitter, and it gets sick or injured; your Pet Power of Attorney steps in and can act on your behalf. If something happens to you where you cannot care for your pet, the Pet Power of Attorney can make sure your wishes are carried out.
Related Article: Why You Need a Pet Power of Attorney if You Leave Your Pet with a Friend
- Pet Trust – Set aside money for the care of your pet after you pass or if you are unable to care for it. The document lets you dictate who will care for your pet and how it will be cared for. The Pet Trust springs into action during your lifetime when needed and ensures seamless care for your pet after you die.
Remember, an estate plan is not a once and done thing. As things change in your life, so must your documents. You need to update and make changes as needed to keep your plan current.
Estate Planning as Part of Your Future Financial Planning
When planning your future finances, make sure an estate plan is part of it. Without estate planning documents in place, your assets are vulnerable and could end up in the wrong hands. Also, your choices and wishes would not be honored. All of this could lead to family strife and legal challenges that will cost time and money. So, don’t skip including an estate plan in your financial planning.
Related Article: How Do You Best Encourage People to Do Estate Planning
Gentreo Has You Covered
We make creating an online estate plan easy, fast, and affordable. And we offer help!
Related: Webinar: Estate Planning 101 and the Gentreo Solution
Our coaches give you one-on-one guidance through each step of the process. Also, we have partnered with licensed estate planning attorneys in all 50 states to give you state-specific legal advice when creating your documents.
Store your estate plan and all your important documents in the Gentreo Family Digital Vault. You and those you choose have access 24/7 from anywhere.
