In Ari’s recent blog, he shared critical ways you can prepare to help your parents manage their estate as they age – including pitfalls to avoid and ways to be proactive before you’re in the thick of managing health and financial problems as a caregiver.
His article was such a great jumping-off point, and it stirred up another question from several of you (thanks for reading and sending in questions!):
How can we proactively create our estate plan to avoid future complications for our kids or family?
Too often, creating or updating estate plans gets put on the back burner once people encounter health problems or cognitive decline.
Being proactive about your estate plan can help you reduce stress, clarify your goals, and start dreaming about the legacy you want to leave–ideally at a time when you are still sharp and able to think critically about your legacy and implement it. It can also empower you to set up an estate plan that sidesteps things like probate (which can be costly and time consuming for family members), and even strategically plan to pass on wealth to loved ones and organizations you care about in a tax-savvy way.
Understand the Basics of Estate Planning
Depending on your personal goals and financial situation, you may have different components that make up your estate plan. Here are some standard tools:
- Will. A will outlines how your assets in your estate will be distributed after you pass away and nominates guardians for any children who need them. Wills generally don’t get to control any assets that are in trusts or accounts that have their own beneficiary designations.
- Trusts. Many people opt to set up a trust for their assets. This can be useful for several reasons – depending on the type of trust, they can potentially protect your assets from lawsuits, streamline beneficiary designations, avoid probate (a sometimes costly and lengthy process that exists to validate wills and such), and give the power to a trustee to manage the financial affairs for you if you’re incapacitated, or for minor children or other people who shouldn’t manage their own financial affairs.
- Power of Attorney (financial and medical). These two documents allow a trusted friend or family member to make decisions on your behalf if you are incapacitated.
- Advanced Directives. This document gives directions about end-of-life medical wishes you may have. For example, a Do-Not-Resuscitate (DNR) order may be included in your Advanced Directive. It is also sometimes called a “living will,” advance healthcare directive, or other similar term, and the specifics vary by state.
- Guardianship. If you have minor children or other dependents, your estate plan should designate guardians if you (and a co-parent if you have one) both pass away or cannot care for your children or other dependents.
To create your estate plan, you can always contact a trusted estate planning attorney (for those in the DMV, our Estate Lawyers to Consider (DC Metro Focus) might be helpful). However, you can also go through a site like Trust & Will, Rocket Lawyer, or Legal Zoom to get the process started.
Documents to Gather
You’ll want to ensure your assets are accounted for when you build your estate plan. A few key documents to round up before you dive in are:
- Financial statements from all of your accounts
- Property deeds
- Insurance policies
- Digital asset inventory
- How will your executor know which accounts you have and how to access them? Using a password manager might help with this process.
This is a solid starting point for ensuring your entire portfolio is represented in your estate plan. You may also want to think about what special items or family heirlooms you’d want to pass on so you can include language addressing them in your will. You might even consider writing up some reflections about items so their stories and meaning can live on even once your memory becomes hazy. I so wish I had asked my grandfather about various items he brought from the old country, and since he didn’t leave any notes on that subject, those stories are lost to time.
Start the Conversation
If you’re creating an estate plan for yourself, it’s important to talk to any potential beneficiaries or guardians who you’re listing in your will. Of course, talking to young kids about your estate plan may not make sense – but you may want to share a little bit about guardianship and what happens if you pass away (keeping it age-appropriate, of course!). Some people prefer to get confirmation from potential guardians that they’d be willing to serve but never notify them of where they are in the order, lest one family member feel resentful of another.
It can also be helpful to let your beneficiaries know where essential documents are stored or add them to a shared digital drive. If you have any end-of-life requests, letting them know in advance can also prevent stress or tension among family members.
Special Considerations
When building your estate plan, it’s important to consider your unique goals, values, and family dynamics. Here are a few extra things to take into account may be:
- Blended family dynamics. It might be helpful to put extra precautions in place – like multiple trusts with clear beneficiaries – when navigating a blended family. Candid conversations about how you plan to distribute your wealth or care for kids, grandkids, and/or a spouse or partner can also help to prevent misunderstandings or mistaken expectations.
- Business succession. If you’re a business owner, it’s probably prudent to create a succession plan for your business if you haven’t already. Organizing who on your team can effectively take over your business, if that’s your desire, needs to be done ahead of time. If you plan to use your business’s assets as part of your estate plan, ensure your estate planning attorney knows. If you have co-owners who would buy your share, the business or your partners might want special insurance (sometimes called “key person insurance”) to help this work smoothly.
- Charitable giving. Have charitable aspirations? Your estate plan is a great place to delegate all or a portion of your assets to charitable organizations. You can donate cash or investments. In some cases, you can even donate real estate or interests in a business. Think through the causes you’d like to support and work with the appropriate organizations to ensure your wealth is passed on in a way that works best for them. Work with a tax-savvy advisor to understand which assets make the most sense for meeting your charitable goals. For example, donating pre-tax retirement accounts like 401ks and IRAs is often a good idea, especially if your heirs are in medium or high tax brackets.
- Special needs dependents. If you have family member or friend who is a special needs dependent, it’s especially important to work with an attorney with special needs trust expertise. Specific special needs trusts can help you to set your dependent up for success after you pass away without compromising their eligibility for government assistance programs like Medicaid.
Regular Maintenance
Your estate plan isn’t a one-and-done “to-do” to check off your list. Regularly review and maintain your estate plan and beneficiaries at critical junctures of your life. For example, getting married, having kids, divorcing, or having a key beneficiary, guardian, or trustee (like a parent) pass away often means that it is time to reevaluate your estate plan.
It may also make sense to evaluate and update your estate plan if tax laws change, you move to a new state, or if your goals for your legacy shift over time.
Working With Your Advice Team
Creating an estate plan proactively can provide you and your loved ones peace of mind. An excellent first step is to contact an estate planning attorney, visit an online tool like Trust & Will, Rocket Lawyer, Legal Zoom, etc., or talk to your financial advisor or tax professional. They can help you organize documents and recommend trusted professionals or resources if you need further information.