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What exactly is estate planning? Thumbnail

What exactly is estate planning?

When some hear the words "Estate Planning" they may think it doesn't apply to them if they aren't wealthy.

During this unique time we are all finding ourselves in, we may have some additional time to get our "ducks in a row".

The fact is, everyone should have an estate plan.  So what exactly is an estate plan*?

In a nutshell, a good Estate Plan will help ensure that your wishes are carried out in the event of a death or disability. 

Some feel there is no rush to get this done if they are on the younger side but bear in mind, a death or disability can happen at any age.  I remember talking to a woman years ago whose teenage son hit their head while skateboarding and that accident changed this young man's life forever as well as the level of care his parents would be providing throughout his life.

So now we know the definition and that you should probably take care of this sooner rather than later.

The next 7 steps determine what you need to do for your particular situation.  Everyone's situation is different and your needs and desires might not match your neighbor.

STEP ONE – Make a list of everything you own.  This includes investment and bank accounts as well as special personal items. Now is a good time to locate that title of your car if it is paid for. And while you are at it, write down your key contacts such as your attorney, CPA, financial advisor, and insurance agent

STEP TWO Have the necessary documents in place.

These consist of:

  • A Will.This is a relatively simple document that just states how you would like your assets divided (including personal items like a coin collection or that autographed Jimmy Page guitar.If you have minor children, your Will is the document that will dictate who would step in to care for them if you were no longer around.
  • Power of Attorney.This document allows another to step in and make financial decisions on your behalf if you are unable to do so.They can pay bills, file your taxes, buy or sell property, and even give money to charity.You have a fair amount of control you can give another and these "powers" should be carefully considered when drafting this document
  • Health Care Proxy.This document allows one to make medical decisions for you.As a side note, remember the young teen that hit his head?Well, since he was not of legal age, his parents could step in and make medical decisions for him.However, if he was over 18 and something happened, without this document, the parents would lose that right.This document is an important one for those with kids in college for example.
  • Living Will.This is a document that lets your wishes be known pertaining to life support and other related treatments.
  • Trust.  These come in a variety of flavors.  The two most common main types are Revocable (changeable) and Irrevocable (not changeable).  Trusts aren't always needed however, the more complex one's life is, the more they can come into play.

For example:

  • You were married before with kids from that previous marriage
  • You have a life partner but are unmarried
  • You own real estate in different states
  • You have a large estate that exceeds the federal or state Estate Tax Exemption
  • You own a large life insurance policy

Okay.  You have your documents drafted by a qualified estate planning attorney and you signed them. (Many go through the process but don't get around to signing their documents for one reason or another.)

STEP THREE -  Check and recheck those beneficiaries on all retirement accounts, life insurance, or transfer on death accounts.  These beneficiaries will supersede one's wishes in their Will or Trust so this needs to be correct.  i.e. your IRA names your spouse 100% primary beneficiary but your Will says, "leave all assets to my daughter Chloe".  Chloe would not receive your IRA assets.

STEP FOUR - Check how assets are titled.  Sometimes we see someone that owned something in their name alone, got married and then passed away.  That asset now would need to go through Probate (the legal process that is in place after one dies to make sure assets and debts are properly taken care of) which could add time and expense to the settling of an estate.

STEP FIVE - Consider gifting strategies.  This is one way that you might be able to save some money in taxes.  Gifts can be done while alive (My grandmother use to say, "It is better to give with a warm hand than a cold one" but ironically, they didn't have much money).  You can also make gifts at death.  Gifts can also go to charities if so inclined.

STEP SIX – Don't forget your digital world.  Having a document for your personal representative (new lingo for Executor or Executrix) with your passwords and logins to various sites can save a lot of time and heartache.  Utilizing a password manager could make sense as you would only have to provide one master password. Remember to update these when they change.

STEP SEVEN - Review your estate plan every few years or if there is a major change in your life such as a death, a birth of a child, or a marriage or divorce.

Estate Planning can seem complicated and it can be.  But getting this done sooner rather than later is usually the best way to go.

Any questions, please don't hesitate to reach out.  We can also recommend some very good attorneys to help in this area.  We are here to help.

As always, please feel free to reach out to me anytime for a conversation.

In good health.

All the best.

Rick Fingerman, CFP®



*This blog article is meant to be just a simple primer. I'm happy to speak in more detail one on one.

Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. Financial Planning Solutions, LLC (FPS) provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client. Information herein includes opinions and source information that is believed to be reliable. However, such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.

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