When many people hear the phrase “estate planning,” they think it’s something reserved for the rich and famous.
But this couldn’t be further from the truth. Estate planning is for everyone and — when it goes beyond just having a will — it can really help family members and caregivers by providing guidance on important decisions.
Unfortunately, too many folks think they don’t need an estate plan, or they put it off: Who wants to think end-of-life decisions? It can be depressing.
However, having a proper estate plan is essential in preparing for the unexpected. In the event of an illness or accident, it’s important that your spouse and children are provided for — and that they know how you want your assets handled.
While it can be a daunting task to get started, it seems a lot more difficult than it really is. Here are the key parts to an estate plan:
This document outlines your wishes for assets you own at your passing and outlines where they’ll go. A will can also help with probate — the legal process through which a deceased person’s estate is properly distributed to heirs and designated beneficiaries.
Without a valid will, going through probate can take some time because decisions can end up being determined by a court. A valid will can help your loved ones avoid this administrative mess.
Be sure to discuss your plans with your heirs to alleviate any issues or disagreements sooner rather than later.
A Healthcare Power of Attorney (HPOA) is a signed legal document in which you name a single person as your health-care decision maker in the event that you can’t make decisions for yourself.
A living will
Also known as an advanced medical directive, a living will outlines your wishes regarding medical care if you become incapacitated, terminally ill or unable to communicate.
This is a statement of your wishes as they relate to decisions about life support and any kind of life-sustaining medical intervention that you want (or don’t want).
If you don’t want your parents or spouse to make all medical decisions for you, it’s best to have these documents outline your specific wishes.
A Financial Power of Attorney outlines who you want to make your financial decisions on your behalf should you become incapacitated. Without this document, no one will have the authority to step in and handle bill-paying, investment decisions and other financial matters.
This is a legal entity that can own your assets (while you’re living or upon your death), and it can be controlled based on your wishes. There are many different types of trusts, and the person setting up a trust can dictate precisely how — and when — beneficiaries receive the assets in the trust.
There are also different reasons for setting up a trust. For example, revocable trusts can help your estate avoid probate, while irrevocable trusts can help limit exposure to estate taxes. This can save time and money for the beneficiaries. If you have a sizeable insurance policy or estate and/or children, it’s worth discussing a trust with a professional to determine the right parameters and language for your situation.
Once you’ve created your estate plan, make sure to periodically review the documents. These are living documents that can change as life evolves.
This is especially important when you have major life changes such as the birth of a child, marriage or divorce.
Remember to update your beneficiaries on accounts such as your IRAs and 401ks. The last thing you want after creating these documents is to have them become outdated — and not representative of your wishes.
Skip Johnson is an advisor and partner at Great Waters Financial, a financial-planning firm and insurance agency with locations in Minneapolis, Richfield, Minnetonka, White Bear Lake and Duluth. Johnson appears regularly on Fox 9’s morning news show.