Estate Planning 101

Did you know that 50% of Americans do not have a will? Although it might not seem like something you need presently, it is necessary as you begin to plan for the future. Estate planning is a key piece of your financial security and allows you to protect your family and ensure that your assets do not end up in the wrong hands.

Cathy was recently featured on Plugged In To DFW to discuss everything you need to understand about wills, trusts and estate plans. Getting started is often the hardest part, but this blog will cover the basics of estate planning and get you started on the right foot as you begin the process.

Starting the Conversation

Estate planning can be a difficult subject to talk about, but starting the conversation doesn’t have to be. An “I’ll deal with it later” mindset is essentially making the decision not to deal with it. As a financial advisor, Cathy meets many family members who are afraid to ask about their loved one’s money or financial business. That should absolutely not be the case. Discussing estate plans, wills and trusts is a conversation that should be open and comfortable. Don’t be afraid to ask if your loved one has a will or estate plan in place.

Leaving your will to the hands of a judge will likely ensue chaos. If you don’t have a properly prepared will, judges and courts rack up fees and delay the process of passing on your hard-earned assets.

As you begin making a will, you will need to name the following people:

  • Executor: The person who handles your provisions at your death.
  • Beneficiaries: The people who will inherit your assets.
  • Custodians: The person who will take care of your children in the case of your death. Consider a separate custodian to handle the assets your children receive, in order to remove a conflict of interest.

By having your estate plan, will or trust handled ahead of time, you are ensuring that your loved ones will be taken care of after you pass.

Estate Plan Vs. Will

A will is a single document that allows you to you can name assets that go immediately to an individual. An estate plan includes a variety of documents that allow you to set up alternate paths for your assets depending on the situation or the beneficiary. You can refrain from giving an individual 100% of an asset right now, and designate how the money is going to be paid out over a period of time. A common example of this is giving money to your children a little bit at a time, over multiple years. 

If you have a car, furniture or anything you want to give away, a will is a simple way to make that happen. An estate plan is more focused on covering all of your bases and factoring in long-term support for your family.

How to Make and Update a Will

Due to always-changing life circumstances such as marriage, divorce, births and deaths, it is recommended that you update your will every two years. If you created a will or an estate plan in another state and now you’re in Texas, you will need to update that as well. 

The first step of writing a will is gathering all your assets. You will then need to designate an executor to your will who will make sure that your wishes have been fulfilled. Naming a custodian to take care of your children (and pets) is also an important step.

Many people are not aware that you can actually list who you do not want to receive something in your estate. You can also ensure that if an argument starts between your beneficiaries, the executor of the estate can sell the items to remove the conflict. Giving the executor the power to liquidate the assets if children cannot agree on them can be a key part to the planning of your estate or will.

Want to see some more things you should be aware of as you begin planning? Cathy has created a checklist to ensure that nothing gets left off of your will.

Where Do I Keep My Will?

While some people like to store it in a safety box in their home, others choose to keep it at the bank in a safety deposit box – just make sure that someone else has access to it later down the road.

You can also put your will in the safe hands of your estate attorney or financial advisor.

Estate Plan Necessities

Your estate plan needs to include these four things:

  • Financial power of attorney
  • Health care power of attorney
  • Living will
  • Trusts

Financial Power of Attorney

A financial power of attorney is a document that gives a person the power to act on your behalf on your finances. You can limit this power as well – it just depends how much power you want that person to have. If you are incapacitated or need to go into a nursing home or hospital, who is going to pay that bill? A financial power of attorney enables a trusted person to take care of your needs when you cannot.

Regardless of your age, if you have money and assets, you definitely need to look into having a financial power of attorney.

Healthcare Power of Attorney

A healthcare power of attorney gives someone the ability to act for you medically. This document allows a trusted person of your choice access to your medical records and the ability to make medical decisions on your behalf.

This is a conversation you need to have with someone ahead of time, so they know what you expect when the time comes, since they are acting on your behalf.

Living Will

People often get living wills confused with wills. A living will is something that happens while you’re alive. If something happens during a medical procedure, do you want to be put on life support? What about a do not resuscitate order? A living will lets you decide how these questions should be answered and takes the burden of decision making off your family.

A Trust

A trust is very powerful tool for someone that has assets. This means that your money is being held in escrow until you pass. That money can then be given to your children or family members.

A charitable trust is also common. Money in a charitable trust accumulates until you pass, and is then distributed as you wish.

When to Hire a Professional

As soon as you think you need either a will, trust or an estate plan, you should talk to a financial expert. The Internet can be a great tool for finding a trusted legal professional, however, using online services for estate planning, wills and trusts can be risky. Since these documents are state-specific, it can be easy to overlook the fine print online and choose an estate planner that is not located in your state.

Cathy sees many people also try to use the self-help mindset. While it is good to be heavily involved during the estate planning process, it is easy to overlook signatures and minor details that can have a major impact later down the road. Hiring a legal professional will help to ensure that every necessary detail is accounted for.

If you have assets, it is worth hiring a professional to make sure everything is set in stone. Working with a financial professional to organize your portfolio is the first step. After you get your portfolio in order, consult with a legal professional to help you prepare the final paperwork. Ask your legal professional these important questions prior to your consultation:

  • How much do you charge?
  • Will I be working directly with you?
  • Is it a set fee?
  • Who else will be looking at my documents?
  • How am I going to be billed?

Make sure that you have a contract in writing, so you know what charges to expect. Typically, it costs between $300 to $1,200 to create a will, depending on how many different documents you need. Estate plans can be a bit more expensive, ranging upwards of $5,000.

If you really love the people that you are trying to take care of later down the road, estate planning and building a will or trust are great tools to ensure that you are protecting your loved ones.

Consulting with a financial advisor can also be helpful as you begin the estate planning process.  Don’t let another day pass by before taking steps forward in the process of creating a will. Contact DeWitt & Dunn to learn more about estate planning.

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