Clients will frequently ask me why they need an estate plan. The simple answer is that everyone needs some sort of estate plan. It really is as straightforward as that. The young couple with small children and very few assets, the single parent, the wealthy business owner, and the struggling entrepreneur with no spouse or children all have something in common. They all need to think about something most of us would rather not: what will happen to their assets after they pass.
In today’s fast-paced society, we all want to exert control over our environment, our lives, and our possessions. But when a person dies without an estate plan, that person loses all control over what will happen to their children, their belongings, and everything they worked hard to attain during their lifetime. It does not matter that when they were alive they told their best friends they should be appointed guardians of their children. It does not matter who was promised the antique silver tray. And it does not matter that they left a note in their nightstand detailing who should inherit their assets. When you die without a will, the courts in the state in which you live decide who will inherit your belongings and who will raise your children without taking into consideration your wishes. The result may be the opposite of what you would have chosen.
Two examples come to mind that illustrate why estate planning should be a rite of passage for everyone.
When you send your 18-year-old off to college, you make sure to buy them everything they need for their dorm room and everything that will help them succeed in their studies. In fact, you will probably send them off with many things they will ultimately not need. But if it is on the suggested items list, then of course they have to have it, right? Probably not. What they do in fact need that is not on the typical going-off-to-college list are Powers of Attorney. If your child is in a serious accident, your child needs a Power of Attorney for Healthcare so that you can make medical decisions for them. It is not on the list, but it is much more important than buying the extra dorm room accessory.
The second example actually happened to a friend of mine. We will call her Jane and her husband, John. John had worked for the same company for twenty-five years. He started working there right after college before he met Jane, and while he was in a serious relationship with someone else. John and Jane had two children together. John died suddenly after suffering a heart attack. He had a small life insurance policy and whatever assets he jointly owned with Jane. He also had a substantial pension with the company he had worked for his whole life. Jane never saw a penny of it. Instead it went to John’s old girlfriend, a woman Jane had never even met. When John started working at the company twenty-five years ago, he named this woman as beneficiary of his retirement plan. He never changed it after he married and had two children. Like many people, he simply forgot about it. Unfortunately, in John’s case that oversight had dire consequences.
Life insurance policies and retirement accounts bypass your Will and Trust. This means that they are distributed according to the beneficiary designation form belonging to each policy or account and not according to your Will or Trust. Working on your estate plan is always a good time to review your finances and make sure that your beneficiary designation forms have been filled out and updated.
A basic estate plan consists of a Will, Trust, Power of Attorney for Property and Power of Attorney for Healthcare. The purpose of this basic estate plan is: to provide powers of attorney for property and health care in case they are needed; to ensure that your assets are distributed upon your death to people and charitable organizations according to your wishes; to provide for a guardian of your minor children upon your death; and to avoid the probate process and court interference associated with settling your estate, especially if you own property in more than one state. A more complex estate plan can also be designed to release or eliminate estate taxes, if possible.
There is no one-size-fits-all estate plan. Our firm can customize an estate plan that works best for you.
Find out more about Boodell & Domanskis, LLC’s Estate Planning practice.