Think estate planning is for the aged or wealthy? Think again. Not having an estate plan can lead to confusion about your end-of-life wishes, as well as emotional and financial stress for your family.
What is the difference between a will and an estate plan? An estate plan provides detailed directives for all your assets, trusts, guardianship wishes, ensures asset protection and more. It goes a step further than a will, and you’ll be glad you did it. Here are seven tips to create an estate plan like a pro.
1. Assemble a Team
Working with a team that includes a financial advisor, tax professional and estate planning lawyers can help you execute a complete estate plan that’s customized for you. Each of the different advisors plays a critical role in the process. The goal is to ensure distribution of your assets to the people and/or organizations you wanted, with as little confusion as possible.
2. Document Your Wishes
Your estate plan should clearly spell out what you want to have happen to your probate assets and possessions at your death. Without it, the state may make those decisions for you. Make sure your estate plan includes the following components:
- Healthcare power of attorney or proxy: Assigns the person you want to make health decisions for you if you are unable.
- Durable financial power of attorney: Determines the person who will make financial decisions if you are unable.
- Living will: Provides clear instructions about what treatments you do and do not want if you are unable to speak for yourself.
- Last will and testament: Allows you to designate beneficiaries for your property and choose guardians for minor children as well as setting up of a trust and/or foundations for charitable purposes.
3. Set up Guardianship for Dependents
You’ll need to name a guardian to look after any dependents, such as a minor (if you don’t, a judge will appoint one for you).
Make sure you talk to your chosen guardian ahead of time to get his or her consent. But remember that he or she doesn’t have to be the person managing the money left for your child’s benefit. Another thing to consider: Naming a couple as co-guardians could get tricky if the couple divorces. Talk to your estate planning attorney about how to prepare for this circumstance.
4. Consider Trusts
Think of a trust as a container designed to hold money for your heirs. You decide what you’re going to put into the trust, who gets what, and how it’s distributed.
A properly structured trust can help ensure that your plan is executed exactly the way you intended. Be sure to work with an attorney who specializes in dealing with estate planning and trusts. You have the option of setting up a lifetime trust or a discretionary trust depending on what your objective is.
5. Plan for Estate Taxes
If your estate is subject to taxes, keep in mind that they are generally due, in cash, as soon as probate or letters of administration have been granted by the courts. This may be a concern if much of your estate is not actually in cash. That could potentially mean selling assets, like a house you may have wanted to leave to an heir. Talk to your lawyers and financial advisor to determine which estate tax planning strategies may be appropriate for your circumstances and how to leave cash for the payment of such statutory obligations.
6. Keep Your Beneficiaries Up to Date
One loophole to look out for: Any money you have under insurance policies and pension products with named beneficiaries will go to those individuals unless your will specifically revokes it. However if you do not update your beneficiaries and your will is also silent then the beneficiaries under those insurance policies and pension products will take the benefits freely and absolutely. Examples are your SSNIT (subject to the provisions of the Children’s Act and the Pensions Act), Occupational Pension Scheme (Tier 2), Occupational Provident Fund (Tier 3) as well as insurance policies.
Keep your beneficiary designations aligned with your estate plan to ensure there are no conflicts.
7. Don’t Forget About Digital Assets
Most of us have a lot of treasured photos and important documents saved in social media accounts and digital file storage services that may be inaccessible to others.
Service providers often won’t disclose a deceased person’s passwords, and there are very few laws to help in this situation. What should you do? Designate a “digital fiduciary” in your estate plan. That person would have the right to access digital information, such as login names and passwords. And don’t forget to work with an attorney to shut down your online presence, if that’s your wish.
Estate planning is one of the most proactive, organizational steps you can take in your lifetime. And the benefits will be part of your legacy.