It may seem uncanny to contemplate your own mortality and even more trivial to decide who gets which of your assets post-death. Recent studies suggest that only about 35-45% of Americans have a will and the reason may be just the ones mentioned above.
But imagine a situation where you are gone, and your loved ones struggle with strings of questions resulting in a full-fledged conflict among them. Documenting a will and signing a few documents will prevent a lot of questions and conflict, along with unnecessary expenses that might block their way. Even if you imagine a simple situation where you are inheriting from a parent, things can get messy if you aren’t careful. For instance, if you have brothers and sisters, you wouldn’t know how your parent would have wanted the wealth distributed among you and your siblings.
Estate planning is the process of developing a plan to transfer your assets by gift or inheritance to your proposed beneficiaries. Documenting a will ensures that the decisions made by you are executed after you’re gone. Estate planning is an indispensable part of financial planning for someone who wishes to attain his or her financial goals and carve out an easy path for loved ones. You may need the help of a financial planner or advisor to design a customized estate plan for you.
Planning Your Estate Right
The process of estate planning can essentially be broken down into 7 simple steps:
1. Determine Your Financial Status or Your Net Worth
You need to make an estimate of the values of assets that you own comprising of your bank and investment accounts, personal property (jewelry, cars, and collectibles), retirement plans, insurance plans and real estate properties. Now calculate the values of liabilities you hold including credit card debt, car and personal loans, mortgages, etc. and subtract this from the value of assets. You get your net worth.
2. Create a Directory of Important Contacts
Develop a comprehensive list of all the important contact information and account numbers for your advisors. Keep the list and the original documents in a safe and central space so that the executor of your will is able to access them after you’re gone.
3. Dispense Financial Security for Children and Dependents
Your estate plan must incorporate provisions for children and subordinates for them to be able to sail smoothly in your absence. If you have a second spouse, you must also provide for children from a previous marriage whose needs may not be addressed satisfactorily if you leave your assets in the hands of your current spouse. Estate planning also addresses the needs of children with special needs so that they do not remain unexposed to government benefits.
4. Gauge Your Financial and Family Needs
You need to examine your family situation and structure to get an idea of what your overall estate plan will look like. It doesn’t matter whether you have a large family or it is just you and your spouse; you need to ensure that your assets:
(a) are taken care of by someone that you choose and trust
(b) can be moved anywhere without any interference of a probate judge
These tips can help.
5. Make Sure to Document Your Wishes
To ensure that your assets are distributed in the way you want, you must commit your wishes to paper so that they are executed procedurally. For instance, you need to specify the beneficiary for your life insurance policy, retirement accounts and additional assets that you have invested in for years.
6. Nominate an Executor
You may also want to appoint a fiduciary – a person responsible for executing your will and a designated guardian for your dependents. An executor is also a trustee of your assets and holds the power of attorney should you become incapacitated and encounter mental or physical disability. They must know how to find your original estate planning documents. Your executor is most likely to be a family member or a close friend or a hired professional such as a banker, corporate trustee or attorney.
7. Design a Living Will
A living will is a document signifying the kind of medical treatment you want or don’t want when you become ill or unable to speak up. If, for example, you encounter severe illness and you want to restrict doctors from carrying out surgery on you, you have the power to document that in your living will and the surgery won’t take place.
While we all head towards the last segment of our life journey, having an estate plan may save you from the wrath of unexpected events and protect your family from losing out on valuable assets. They will experience peace of mind when you’re gone.
