Create Your Simple Estate Plan

“Why do today what you can put off to tomorrow?”

-Benjamin Franklin

Actually… I may have something mixed up there.

This same type of thinking is how many treat their estate planning.

No one plans on dying tomorrow. Not only that, but it’s uncomfortable to put yourself in the mindset that one day, you will not be here. This makes it difficult for many people to actually sit down and plan out their estate.

However, organizing your estate is one of the most essential financial planning practices to accomplish. And it isn’t all that bad! Today I’ll discuss the bare minimum for you to have sorted out to provide comfort for your family.

Why do We have to do This in the First Place?

What’s the only thing worse than dying? Having the government tax what you leave behind and/or making your possessions public record.

These should be the primary goals of your estate planning: being able to pass along your assets without 1) being taxed and 2) it becoming public knowledge.

In the United States today, if the value of your total estate surpasses $12.06 million at the time of your death, the USG can levy a tax over that threshold up to a 40% rate. There are strategies to mitigate this, and they should be discussed with a professional.

Additionally, if you pass away with assets that are untitled, they are subject to the probate court. Probate boils down to the court system deciding who should inherit your assets because you did not specify it yourself before you passed away. Probate is expensive, time-consuming, and invasive to your privacy. On the bright side, avoiding it is easy to do.

Plan Your Estate with These Simple Steps

Since many Americans will not be in the position to worry about an estate that exceeds the $12.06 million threshold, today’s post will focus on avoiding probate. Even if you are a deca-millionaire, these estate planning tips will apply to you as well.

There are four actions you need to take today to sleep easy knowing that your estate will pass as you intend:

1. Listed beneficiaries on all accounts
2. Having a will in place
3. Power of Attorney and Health Care Directive
4. Regular review

Beneficiaries on all Accounts

This is the most important step to take with estate planning because it covers the bulk of a typical couple’s assets and can be done in less than five minutes!

When your investment accounts have beneficiaries attached to them, these assets automatically avoid probate. Adding them and keeping them up to date is paramount.

A little-known fact is that stated beneficiaries on investment accounts take precedence over beneficiaries listed in wills. For example, let’s say you pass away with a Traditional IRA. The IRA has your parents listed as beneficiaries, and your will has your spouse as beneficiary.

This is quite common, unfortunately. The beneficiaries weren’t updated after the wedding. In this case, your parents would inherit the IRA.

It’s likely been a while since you have reviewed your beneficiaries. Take a few minutes to do so today.

Draft a Will

Now that your investment assets are covered with beneficiaries, get a will in place to take care of just about everything else.

Have some fine china from your wedding? Include it in the will.

Are you a collector of antique superhero action figures? Throw it in there, too.

To create your will, you can have your attorney draw one up for you easily. If you are a DIY-er, you can download a well-put-together template online for ~$100. I recommend you always err on the side of caution with important legal documents.

POAs and Health Care Directives

For most Americans, the “Big Three” estate documents each person should have are the will, a Power of Attorney, and an Advanced Health Care Directive. In many cases, it does not need to be more complicated than this.

A Power of Attorney is ultra-important and is often overlooked. This document gives someone else, known as the attorney-in-fact, the ability to make health care or financial decisions for you during your lifetime. This power can be granted immediately or after a specific event or condition has arisen.

The reason a POA is so important is because if you do find yourself in the unfortunate predicament of incapacitation, you cannot sign a legal document. This is one of the main pillars of a contract – the signers must be capacitated. So, by the time you would desperately need someone else to make decisions for you, they would not be able to do so without this document in place.

An advance health care directive can be viewed as your directions to a physician stating whether you want life support. If two or more physicians declare you to be in a terminal state, this document and its directions will become effective. The main purpose is simply to give direction on whether you would like to be kept alive by any means possible or to die a natural death.

Notes on Estate Documents

I am going to interrupt this list in abrupt fashion because I believe it’s important to mention estate documents and their cost.

There is one fact to keep in mind, and that fact is that you pay for quality. Whether you choose to pay an attorney to draft your documents or do it yourself is up to you. However, there is a reason that attorneys are paid for their expertise: it’s because the attorney can do it once and do it right. When electing to go it alone, you do risk completing your estate planning incorrectly.

I am not an estate expert, and this article is not meant to be construed as advice. I would recommend speaking with a professional.

Review Regularly

It is best practice to review your estate documents at least annually. This practice can be included in your annual review with your financial advisor.

Conclusion

I told you it wasn’t so bad! Three documents and some regular review is all it takes for a majority of Americans to ensure a swift transition of your estate.

I will note that I am just scratching the surface, however. Estate planning can be complex, you might find yourself in a position requiring much more detail, but most are going to be just fine with these simple steps. The most important part: don’t put it off any longer!