One area that is commonly overlooked in the retirement planning process is proper ESTATE PLANNING.
Preparing for the future is one of those things you know you should do — but chances are you haven’t sat down yet and constructed a plan. With everything else going on in life, it can (and usually does) get put on the back burner.
Here’s a FACT – According to an AARP survey – 60% of Americans have no will or estate plan in place.
Of course, a written will, either done by a professional or DIY (do-it-yourself), is essential to an estate plan, but is not the only piece.
Let’s break down the different sections to a proper estate plan in simple language through JACK AND JILL – A husband and wife with a daughter together. Jack also has a son from a previous marriage:
1. Will – A will is a legal document by which a person expresses their wishes as to how their property is to be distributed at death, and names one or more persons, the executor, to manage the estate until its final distribution.
It is important to know that many assets transfer outside the will and probate process. These assets include annuities, life insurance, retirement accounts (such as 401(k)s and IRAs), jointly-owned property, etc. The beneficiary designations of these assets decide who inherits them, often without reference to a will. It is extremely important to make sure the beneficiary designation is up-to-date on your IRA or 401(k)!
EXAMPLE – Jill leaves everything in her will to Jack as Primary, and their daughter as secondary. Jack, however, leaves some funds to his son as primary, and his daughter as secondary; and he leaves the bulk of his estate to Jill as primary, and their daughter as secondary.
2. Living Will– The first document you need to create to ensure that your medical wishes are honored is called a living will. This written document lays out how you should be cared for in an emergency, or if you are otherwise incapacitated. Your living will sets forth your wishes on topics such as resuscitation, desired quality of life and end of life treatments – including treatments you don’t want to receive. This is a private document, primarily between you and your doctor, and it advises him or her how to approach your treatment. Try to be as specific as possible in this document, realizing that you can’t account for every possibility, which is where the durable power of attorney for health care comes in.
EXAMPLE – Jack laid out in his living will a “do not resuscitate” clause, and detailed that he does not want life supporting machines. Jill’s Living Will states that she would like to be resuscitated, but does not want life supporting machines.
3. Health Care Power of Attorney – The durable power of attorney for healthcare is gives power to the person you want to make medical decisions for you in an emergency. Even though you set out your wishes in your living will, such documents can never cover every circumstance, and the person who has a durable power of attorney for healthcare can make decisions not covered by your living will.
EXAMPLE – Both Jack and Jill named the other as durable power of attorney for healthcare. Jack listed his sister in the event that Jill was not capable. And Jill listed her mother.
Keep in mind that the person with a durable power of attorney for healthcare can never contradict the terms of your living will. Rather, that person is there to fill in gaps, for situations not covered by your living will, or in case your living will is invalidated for any reason.
4. Trusts – Trusts have many different uses, and can provide flexibility that a will simple can’t. With a trust, your assets can avoid probate and your privacy can be maintained. Trusts can also provide instructions on using assets to provide for underage children. The right trust can provide security for your heirs while protecting the wealth from them. Also, a trust can protect assets from creditors of yours and your heirs’.
EXAMPLE – Jack wanted to make sure his son was taken care of. He set up a trust, and designated Jill as the executor. He detailed his wish to pay for his son’s college, first car and first house. He also detailed the ages in which his son will get lump sums.
Does your situation need an estate plan? It really depends on your personal situation. If you want a referral to a qualified estate attorney, feel free to call our office.