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Is Your Estate In Order?

lifestyle wealth Nov 15, 2022

Do you have a spouse, dependent(s), or substantial assets?

If you fall into any of those categories, read on...

A basic estate plan is something almost all of us should be thinking about. This starts with a determination of how your assets should be addressed upon your death. This can be accomplished through a will or a trust.

A will is a legal document designating what should become of your assets after your death. It should also designate a guardian for any dependents. A will can request an executor to create a trust after your death to hold assets for a minor (I would have an attorney set this up). A minor should never be directly listed as the beneficiary of a life insurance policy.

If you die with a will, your assets will go through the process of probate. Probate is the process of the legal system reviewing your will and the distribution of assets. This process takes time, involves lawyers, and costs money. Of note, 401(k) plans and IRAs typically get to bypass probate if you have appropriately selected beneficiaries, as do certain jointly owned assets with a spouse.

Alternatively, you can entirely bypass the probate process by using a trust instead of a will.

A trust is a legal way to transfer assets from the owner (grantor) to someone else (trustee).

There are a wide variety of types of trusts. I will cover the most common trust used for estate planning, the Revocable trust (which is the one I currently have).

A Revocable trust can be changed at any time during the lifetime of the grantor. For tax purposes, the grantor still owns all of the assets in the trust. The trust will designate a successor trustee to control all of the assets upon the grantor's death or disability. Again, trusts avoid probate.

What if you die without a will or a trust?

This is called dying intestate, and it means the division of your assets and guardianship of your dependents will fall under state law. There is a high likelihood this will NOT in alignment with your wishes. If you have children, you should not even consider this as an option.

How does the process work? 

You can make your will/trust as elaborate or simple as you want. I recommend using an estate planning attorney to craft yours, and spending time with your significant other in the planning process in advance of meeting with any attorney. 

The average cost of having an attorney draft a will is $300 to $1000. This is less than the average cost of trust formation, which is typically $1500 to $2500.

To create our trust, we had several meetings with an estate planning attorney. Before we met with her, my husband & I considered answers to some key questions:

  • Who should be the guardian of our child(ren) should we be deceased? Who would we use as a backup if our primary selected guardian was deceased or disabled?
  • How would care for the rest of their life as a minor be funded (daycare costs, food, activities, clothes, etc)?
  • Will higher education be funded in any way?
  • Do we want all assets designated for child(ren), or are there other family members, friends, or charitable organizations we would want assets left to?
  • What criteria do we want used to declare us disabled, which would grant someone else control of our assets?
  • Who do we want to make medical decisions for us if the other spouse is unable to?

 

Regardless of if you choose a will or a trust, please ensure you have adequate life insurance.

Most people should have 10 times their annual income in a TERM life insurance policy. For more information on why you shouldn't buy a whole life insurance policy or IUL, click here. If you have a high debt burden, particularly if the debt doesn't resolve with your death or disability, I would add that to the amount. 

For example, if your salary is $150,000 and you have $300K in private student loan debt, I would obtain a term policy for $1,800,000.

Term policies are inexpensive. If you have children, you should not even consider going without a policy.

What other paperwork should you consider?

You should specify a durable power of attorney for your financial and legal affairs, a healthcare power of attorney, and create a living will with your medical wishes.

After spending years working in an ICU, I cannot emphasize enough how important it is for you to have a documented healthcare power of attorney and living will. If you don't have this paperwork, your legal medical decision makers will be in accordance with state law - which may not be the person you want making life or death decisions for you. In addition, a living will can guide distraught family members in the event of your critical illness. 

You should put a copy of your will or trust in a safe place (ideally a fire-proof safe). This should be accompanied by information that the executor of your estate would need to execute your wishes, including all insurance policies, accounts, investments, etc. 

Stephen Covey is known for his Urgent Important matrix. If you're familiar, you will recognize that creating your estate plan falls under Important & Non-Urgent. This is the kind of task that YOU need to prioritize, or it will never get done.

If you want help growing your assets so that you have an estate to not only support yourself but bless your kids & grandkids, Money Boot Camp for White Coats will teach you how to invest. Join the waitlist here

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