An estate plan is a powerful tool that ensures your wishes are carried out and that your loved ones are cared for after you’re gone. However, creating an estate plan is not a one-time task; it requires regular reviews to keep it current and aligned with your changing life circumstances. Whether you’ve experienced a major life event, like a marriage, the birth of a child, or a significant change in your financial situation, it’s important to revisit your estate plan periodically. In this article, we will explore the different levels of estate planning and why estate plan reviews are essential.
Levels of Estate Planning:
Estate planning encompasses varying degrees of complexity, depending on the individual’s assets and family dynamics. At its most basic, estate planning may involve simply designating a beneficiary for specific accounts, ensuring those assets are directed to the intended individual upon passing. However, as estates grow in size and family structures become more intricate, estate planning often requires a more nuanced and sophisticated approach. Without careful management, this process can become time-consuming and costly, particularly if critical elements are overlooked or improperly structured.
Here are the different types of estate planning levels:
Beneficiary Designation
To begin with the most basic level of estate planning is to ensure that you have beneficiaries designated with every account that allows you to have beneficiaries. Assigning direct beneficiaries to your retirement accounts, life insurance, and bank accounts is crucial because in the event of your unexpected passing these accounts will be able to pass outside of probate which can be very beneficial to many families since the probate process can be timely and costly.
The importance of having beneficiary designations stems from the lengthy and potentially costly process of having to go through probate. Probate is the legal process by which a deceased person’s assets are distributed to their heirs or beneficiaries. In this process any sort of outstanding debt will be settled, and any creditors claim towards the estate can lengthen the process and cost the estate more. When designating a beneficiary, it is important to regularly review them for all of your accounts to make sure they still line up with your current life situation because these designations override what is written in a will for those accounts! In the event that the will says one thing while the named beneficiary on the account is another the named beneficiary will win.
Will
A will is a basic document that outlines how your assets will be distributed after death. It may also include guardianship provisions for minor children. A will is often considered the most fundamental part of estate planning and will likely be a primary document for your estate. While a will is essential, it is important to note that it does not cover all assets, particularly those with direct beneficiary designations or held jointly. These include insurance policies, retirement accounts, and joint bank accounts. Different accounts are governed by different documents, so meeting with an estate planner who can walk you through the differences is an important aspect of estate planning.
Health Care Proxy
A health care proxy (or Medical Power of Attorney in some states) allows you to appoint someone to make medical decisions on your behalf if you’re incapacitated. It is a fundamental tool for healthcare decision-making.
Power of Attorney (POA)
A Power of Attorney grants someone the authority to manage your financial or legal affairs if you’re unable to do so. If the Power of Attorney remains effective even if you’re incapacitated, it is known as a “durable” Power of Attorney. Conversely, a non-durable Power of Attorney ceases to be effective upon incapacitation.
Living Will
A living will specify your wishes for medical treatment, life support, and end-of-life care in case you’re unable to communicate. It focuses on your healthcare preferences when you cannot express them. Key aspects it addresses include end-of-life care, organ donation, pain management, possible DNR (Do Not Resuscitate) orders, and the designation of a healthcare proxy. A living will only take effect if you are incapacitated or unable to express your wishes, providing guidance for medical providers and your family to make informed decisions in accordance with your desires.
Letter of intent
A letter of intent is a non-legal document providing personal guidance to your executor or trustee regarding your final wishes, funeral arrangements, and assets distribution. While this is a non-legally binding letter it can offer clarity for your family members for your wishes after death and your family can interpret your intentions more personally and with added nuance.
Guardian Designation
Guardian Designation allows you to name someone to care for minor children if the parents pass away. This is often included in a will, but it can be a standalone document.
Trust (revocable and Irrevocable)
A trust can be more complex than a will. It allows you to transfer assets to a trustee to manage on behalf of beneficiaries, helping to avoid probate and providing more control over distribution. A revocable trust can be changed during your lifetime, while an irrevocable trust offers more asset protection but is harder to modify.
Transfer on Death (TOD) and Payable on Death (POD)
These accounts allow you to designate beneficiaries to receive assets without going through probate. They’re useful for specific types of assets but require careful planning to ensure they work in conjunction with other estate planning documents. Both of these are estate planning tools that allow assets to pass directly to a beneficiary upon the account holders death, bypassing probate. However, they apply to different types of accounts and have slight distinctions in terms of usage and flexibility.
Differences between TOD vs POD accounts:
In Conclusion, regularly reviewing your estate plan is essential to ensure that it accurately reflects your current wishes, family circumstances, and financial situation. Life’s events- such as marriage, the birth of children, changed in assets, or shifts in tax laws- can all impact the effectiveness of your estate plan. A thorough review allows you to update beneficiaries, adjust asset distribution, and incorporate strategies that provide greater protection and peace of mind for you and your loved ones. By dedicating time to these periodic revies, you are not only safeguarding your assets but also ensuring that your legacy is handled according to your intentions, avoiding unnecessary legal complications and cost.
Advisory services offered through Nepsis, Inc.: An SEC Registered Investment Advisor.
Source links:
Payable on Death Account vs. Transfer on Death Account
Transfer on Death & Payable on Death Designation
Estate Planning Guide and Checklist for 2024
Estate Planning: Wills, Trusts and Other Tools
What Is a Will? Why You Need One – NerdWallet