Dive Deep Into The Importance of Estate Planning For Any Age
April 23, 2020 Author: Tess Downing, MBA, CFP®, Complete View Financi
The Importance of Estate Planning
The future is full of unknowns. However, while it is impossible to predict what the future has in store, there are plenty of things all people can be doing to prepare for any possible situation. Answering the “what if” questions in life—like “what if I were to suddenly pass away?”—can be challenging, but it will still be very important. Contrary to what some people assume, estate planning isn’t just for older people or people with large amounts of wealth. Estate planning can be beneficial for pretty much anyone, regardless of their current financial or life circumstances.
If things change in the future—whether this means getting married, experiencing a major financial change, etc.—you will always be able to adjust your estate documents, as needed. However, failing to have any plan in place will leave the fate of your estate in the hands of the courts (which can sometimes create unexpected problems).
To begin the process of estate planning, you should take inventory of all of the things you own, including all accounts, assets, and personal belongings. When planning, you should also think about all sources of debt, which will often need to be settled (whether partially or wholly) before your estate is passed onto your beneficiaries. Then, once you’ve identified all financial assets and liabilities, you will need to work with a qualified estate attorney to begin preparing your key estate documents:
Power of Attorney
In many situations—especially in the last few years of life—people will still be living but will not be in a position to make their own legal decisions. The durable power of attorney document will name who will be responsible for managing all finances and legal obligations in the event you are no longer able to do so. This can include things such as taxes, major financial decisions, and other important choices. While the power of attorney will be important for older people, it is not a decision that younger people should overlook. In fact, anyone over the age of 18 should have their own power of attorney executed.
Medical Directive
Medical directives will instruct people (such as doctors) of what to do in various medical situations. This can include giving instructions on what to do in the event you are on life support, are terminally ill, or are no longer able to make informed medical decisions. If you do not have any medical directives, the doctors will likely use a standard set of practices (which may or may not be what you want).
Last Will and Testament
The last will and testament document will name who becomes the executor (personal representative), the powers this person (and all other named parties) will have, and who you named as beneficiaries. This document will outline how all of your assets are managed in the event of your death, which is why they are considered so important. If you have any children or other financial dependents, it will also be important to clarify who will care for these children (both financially and physically) in the event of your death. When creating a will, begin by picturing a world where you will no longer be around to provide—what details will need to be accounted for? While the exact details will vary by person, it is better for your will to be too detailed rather than leaving things to chance.
Living Trust
Creating a living trust will make it much easier to transfer all assets to your beneficiaries. This document removes the need to go through probate court, which is something that can potentially diminish the total value of your estate (due to legal fees). Not all people need to create a living trust. Whether a trust makes sense for you will depend on the current structure of your family, the amount and type of assets you currently own, and the laws that are specific to your state.
Conclusion: Plan Early and Think Ahead
Ultimately, no matter where you are in life, there are too many unknowns to justify not having a plan in place. Nobody knows where they will be ten years, or even one year, from now.
Getting an early start on estate planning will help you improve your financial position and help you prepare for addressing the unexpected. You should also make sure that your documents are safely secured (preferably in a fire-proof safe) and that essential parties can access these documents in the event of an emergency. Lastly, it is important to remember that things can change. You should review these documents at least every few years and ask for input from your financial advisor and attorney, when needed. When it comes to financial planning, being prepared is never a bad thing.