Whether your assets are substantial or modest, you need an estate plan. You may find the subject of death difficult to contemplate, but estate planning is still essential. The point is to organize your affairs and to ensure that your family’s financial needs are met after your death. Here are some of the basic elements of the estate planning process:
- Calculating Net Worth
This means adding up the value of your assets. This includes your investments along with property and retirement accounts. You will need an idea of how much you are worth before you decide what happens to it when you die.
While a simple will is still the foundation of estate planning, some additional measures are necessary to ensure the smooth transfer of assets after death. In its simplest form, a will is a statement of who gets which assets. However, you should note that your will is not the only document that determines what happens to your assets after you die. Hopefully, you have done your research to compare life insurance quotes, and have a good plan set up since assets like your retirement account or life insurance come with beneficiary forms that must be filled out. Those forms determine who gets those assets. Your will should be consistent with those forms.
- The Power of Attorney (POA)
This allows you to enable someone else to act on your behalf in the event that you become disabled. Without a POA, the decision as to what happens to your assets is left in the hands of the court. The court’s decision may not be in keeping with what you want.
- The Designation of Beneficiaries
It is important to keep a beneficiary named on retirement accounts and to update that beneficiary as needed. If a beneficiary is deceased or is no longer the intended recipient of the assets, then someone else must be listed in their place. As a part of the estate planning process, it is important that you review all such accounts to make sure that the named beneficiaries are in fact living and are still your intended heirs. If there is no beneficiary listed, a court will make the decision as to what happens to the assets; again, that decision may not be in keeping with what you want.
- Writing Letters of Intent (LOI)
This is a document in which you state your intent as to how your assets are to be used. While it is not a legal document, your LOI may help a judge to better understand your desires. Your LOI may be directed to your will’s executor or to a beneficiary.
- The Healthcare POA
This is similar to a standard POA, but concerns healthcare decisions. It empowers an individual to make healthcare decisions on your behalf.
- Selecting Guardians/Trustees
The guardian is the person that a deceased parent names to take care of their children. Not all form wills include this but it is extremely important if you have children. If you do not appoint a guardian, then the court will do it. The result could be that your children go to a family member you would not have chosen. It is also important for you to name a trustee; this person will manage any money you have left to pay for your child’s care.<
Contrary to popular misconceptions, estate planning is not just for the wealthy. Anyone who owns anything of value has an estate. If you want to pass on your assets to your loved ones, it is essential that you have a plan in place to control how this is done.