By Eileen Ortega, CTFA
It is a New Year and many of us approach each New Year with a clean slate. There are countless bandwagons to jump onto such as starting an exercise regimen, joining a diet program, tightening the financial budget, and, of late, “Dry January.”
In each of these resolutions there are the best of intentions, whether to improve one’s health, put life on a better path to success, achieve a financial goal or improve a financial burden, etc. We each look inward. What can I change? What do I need to do? How do I make this year a SUCCESS? We ponder the next 12 months and hope that by this time next year, things will have changed for the better. What we forget, however, is that we do not know what roadblocks we may face as the year moves forward.
Each year, we get older, we have less time to do the things we have dreamed of, and we get closer to a point when we may not be able to do those things. Morbid? Maybe. Can we do something about it? Definitely!
A year from now you may wish you had started today.
– Karen Lamb
Estate Planning and the Perpetual Procrastination
Rule number one when it comes to Estate Planning is that everyone needs a plan. If we can change the way we think about Estate Planning from “something only the very wealthy need to worry about” to “a way to leave a love letter to my family and make sure that they are taken care of”, I think there would be far more people for whom Estate Planning is one of their Resolutions.
Rule number two is simply knowing that at some point, we will all pass away. We do not know when, we don’t know how, and we don’t know if we will be able to make sure that our affairs are buttoned up. Making a choice to plan for the inevitable now will not only ensure that our assets pass as we wish, but it also serves as a gift to ourselves in that we can focus on being present in our lives now without worries of what if? There is no time like the present to plan for your future.
Live as if you were to die tomorrow. Learn as if you were to live forever.
– Mahatma Gandhi
What Do We Need and How Do We Get Started?
Truth be told, sitting down with an attorney to draft an estate plan can be intimidating, not only because the topic at hand is what happens when you die, but because legal strategies and documents can be hard to understand and hence, it is an easy thing to put off doing.
Before making an appointment, consider doing the following:
- Make a list of your assets, including Financial Accounts, Real Estate, Personal Property (cars, etc.), Jewelry and anything of financial or emotional value.
- Make a list of those you would like to include in your plan. This may or may not include family members, and may include Charities, friends, or otherwise.
- If you have minor children, it is especially important to think about who you would entrust with their care, both personal and financial, and make sure that it is something they would be willing to take on. Things to consider are whether they have a similar philosophy on child rearing or are willing to follow your wishes in the care of your children.
- Think about who you would like to make decisions about your finances and healthcare in the event you are unable. Be sure to think not just about who you trust, but who will be able to act effectively and in accordance with your wishes.
- Note who you would like your assets to pass to, and in what amount. This will help to identify your primary beneficiaries, and the primary purpose of the plan. As you and the attorney begin the actual process of drafting the plan, you will expand this topic to decide “how” best to leave the assets to provide the most protection.
Do not fear, it is completely natural to get stuck in this process. Lean on your advisors who have helped others with this exercise, as they can offer perspectives that you had not considered and can help you determine the pros and cons of different decisions.
Once you have a framework for how you would like your Estate to pass, it is time to meet with an attorney who will prepare the documents for you. Following are the essential documents each person needs, though depending on the complexity of your Balance Sheet, there may be additional planning such as a Revocable Trust that make sense for your situation.
Last Will & Testament
The purpose of a will is to direct how you want your assets to pass to your heirs in the event of your passing. In addition, the will appoints a guardian for your minor children and provides guidance as to how they are to be provided for.
Power of Attorney
A critical document in the event you are incapacitated, the Power of Attorney will designate an agent to make legal and financial decisions on your behalf.
Healthcare Power of Attorney
In the event you are unable to make decisions for yourself, this appoints an agent to act on your behalf for all health care needs.
Living Will
A Living Will is a written, legal instruction regarding your preferences for medical care in the event you are unable to make decisions for yourself. This goes hand in hand with the Healthcare Power of Attorney, making it clear to all your intentions in the event of a terminal illness, dementia, severe injury, or other unforeseen event. This often serves as a gift to those left to make decisions, giving them peace of mind that they followed your wishes.
Once the plan is executed, you will collaborate with your advisor to retitle accounts as needed, update Beneficiary Designations on Retirement Accounts and Life Insurance Policies, and review to make sure the plan is understood.
The plan will be done, and you can now regain focus on the present. Inevitably, your life will evolve, your children will grow up, people will come in and out of your life, and your financial situation will improve, or at a minimum, change.
The most important thing to remember about the Estate Plan is that it will change with you. What you wish for today may not be the same in 5 years. You will want to review the individuals named to carry out the plan to make sure they are still the right choice. You will want to reflect on the financial maturity and behaviors of your beneficiaries to determine if a change is needed to the amount or structure of their inheritance. Tax laws and inheritance laws will change, sometimes making it necessary to update your plan to take advantage of tax savings opportunities. This will warrant an addition to your future New Year’s Resolution…. “UPDATE” Estate Plan. Only this time, you are working from a foundation, so it should certainly be easier to add this to the list.
If you feel “stuck” or need help in getting started, your advisor should be armed with the tools and information needed to help you map out your next steps. Do not go it alone, as advisors our job is to help you navigate where you need to go and how to get there!
If you need help to move forward, you may want to talk with a financial advisor with experience in Estate Planning. Our fiduciary wealth management firm in Ponte Vedra Beach, Florida, offers a complimentary consultation. We invite you to schedule a consultation today.