Getty/Amber Hawkins
When clients first come to see me, they are usually excited about moving forward in their financial lives. That might include getting their retirement planning checked out, maybe moving a 401k, company stock, or pension accounts from their ex-employer to another account, or maybe starting a college savings plan for their child.
What they’re not so eager to talk about – and what’s equally important – is getting prepared for that cringingly uncomfortable discussion of planning for the future or the end of their lives, whenever that may come.
A 2020 Estate Planning and Wills Study published by Caring.com showed more Americans are shying away from developing a will, a living trust, or other types of estate planning documents. The number of adults prepared with these documents has dropped by nearly 25% since 2017. People cited a lack of knowledge or the cost of such documents when asked when they had put off planning.
First, know that estate planning is not just for the wealthy. Nor does it involve only a will or a trust. You want to be sure that your plan makes certain that all your assets are transferred seamlessly to your loved ones, heirs, and chosen charities when you die. A good estate plan also should include provisions that will allow family members to access or control your assets, and help make critical medical decisions, should you become unable to do so yourself.
A good estate plan includes at least five documents, six if you have minor children or other dependents:
- A will or trust
- Two types of durable power of attorney
- Beneficiary designations
- Letter of intent and guardianship designations.
You also should consider talking to a financial advisor about products such as long-term care insurance, a lifetime annuity to provide some income until you die, life insurance, and more.
Let’s take a closer look at the documents:
Wills
A will, one of the most basic of estate planning documents, is a legal document expressing how the writer wants assets distributed upon death. Notarizing is not necessary, but is recommended to reduce the potential for dispute.
Trusts
A living trust also allows the creator to control the distribution of assets, but is more advanced than a will and allows for more specialized distribution instructions. Additionally, you can continue to update or amend, maintain control of your assets, and more while you’re living. It also allows the estate to bypass the costly and sometimes lengthy court probate process. Here’s a handy primer from the IRS that further explains the differences between the different kinds of estate planning trusts.
Power of Attorney
What if you get sick or injured so badly that you can no longer handle your own affairs? That’s where a durable power of attorney comes in. It designates someone in advance to take over should you become incapacitated. There are two types: one for making health care decisions and one for handling finances. You should have them both. Obviously, you need to choose your designated person – someone you trust and who shares your most important views. You don’t need to have the same person for both types of power of attorney. But, in either case, it’s very important for you to share your decisions with the people you’ve selected and to insure that they have a copy of your directive. Recently my father experienced a traumatic accident and had an extended stay at the hospital, and I needed to produce a copy for each medical facility he stayed at. This document enabled the medical professionals to discuss critical care decisions with me and allowed me to assist in making his health care decisions for him when my he and my mom were not able.
Beneficiary Designations
Be sure your beneficiary designations are up to date. It should go without saying to check your life insurance policies, retirement plans, annuities and pensions to be sure your wishes have not changed regarding who will get the benefit of these assets. Often, new parents will set up a living trust when they are about to or have their first child, but forget to add the names of their future (second, third) children. It’s important to circle back and review your trust every 3-5 years to make sure the information is still accurate.
Letter of Intent
A letter of intent is something you leave for your beneficiary or executor of your estate. You can specify what you want done with a particular asset. Some people use a letter of intent to include desired funeral details or to make other special requests like having your family and friends hold a celebration of life instead.
Guardianship Documents
If you have children under age 18 or are providing for a person with special needs of any age, you will want to have a guardianship document. You can designate who you want to care for your dependents after you die or are disabled, and how the assets you set aside for their care should be handled. As a parent, this the toughest decision to make in preparation for a family’s living trust. Just remember, if you don’t decide, the courts will!
Feeling a little overwhelmed by all this? This is totally normal. You can, of course, hire an attorney to help with advice and writing of the documents or you can use one of the many tools available to create your own, such as rocketlawyer.com or nolo.com.
If you prefer to hire an attorney – which is often the choice for people with specific conditions and requests – pick someone in your own state. Estate laws vary widely from state to state. And most importantly: Make sure all your documents are complete with signatures, notaries, and provide copies to your financial institutions to update the titling of all your financial accounts, businesses, assets, and real estate.
One more piece of advice: After you’ve created these documents, round up your other important papers – deeds, bank account information, and other account information, list of credit cards, copies of driver’s license and TSA Global Entry, passport and the like – and put them all in one place where they can be easily found. Scan a copy for yourself and keep another with a trusted source, and also your designated beneficiaries. Your loved ones will thank you for it.
Winnie Sun is an award-winning financial advisor and managing partner of Sun Group Wealth Partners. She’s serves on the CNBC FA Council, Forbes contributor, the personal finance pro on Good Day Los Angeles, and the host of the television show Level Up with Winnie Sun distributed on NASDAQ and coming to the CW San Francisco. Follow her on Twitter at @winniesun.