961. Laura answers a listener's question about creating a complete and affordable estate plan to protect their heirs.
961. Laura answers a listener's question about creating a complete and affordable estate plan to protect their heirs.
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Welcome back to Finance Friday, another special edition of Money Girl, where I answer your burning money questions! Today's topic comes from an anonymous source, who says:
“My mother recently died and left a financial mess for my sister and me to untangle. I don’t want to do that to my kids. My husband and I both have wills, but we could probably do more to be better prepared. What steps should we take to create an affordable estate plan for our eventual passing?”
I really appreciate this anonymous question. Managing a loved one’s estate while you’re grieving their loss can be especially difficult. While there’s no law that says you have to have a will or do any estate planning, getting organized for the sake of your loved ones is admirable.
This post will review affordable estate strategies that go beyond having a basic will. I’ll discuss how a little upfront planning can save time and money for those who inherit your assets. Additionally, I’ll cover actions you can take that go beyond creating traditional emergency documents to make life easier for your beneficiaries.
Welcome back to episode 961 of Money Girl–I appreciate you downloading the show! I'm Laura Adams, an award-winning author, on-camera spokesperson, female money speaker, and founder of The Money Stack, a Substack newsletter.
You can learn more, ask any money question, and sign up for the Money Stack at LauraDAdams.com. You can get the newsletter for free or become a paid member with access to my live educational and Q&A events. Additionally, you can ask a money question by leaving a voicemail at 302-364-0308.
What is an estate plan?
If you think that “estate planning” is only for the ultra-wealthy, you’re mistaken. Whether you have a tiny or massive amount of wealth, your estate is what you leave behind after death or becoming incapacitated.
Estate planning is the process of creating clear instructions for what you want to happen to your assets, children, or pets, and who you want to be in charge if you die or can’t make decisions for yourself. It’s your official rulebook for what will happen when you’re no longer around, physically or mentally.
Many people put off estate planning because it’s not enjoyable to consider mortality or situations where you can’t express your wishes. Also, you might assume that estate planning is exorbitantly expensive or difficult to complete. However, if you reframe it as a gift to those you leave behind and a way to create more peace of mind while you’re alive, it can be a more joyful process.
Remember that if you don’t have certain emergency documents, crucial decisions about your assets and minor children get left to state laws and courts. That can create stress, conflict, and unnecessary costs for the people you love most.
Here are nine strategies for creating an affordable and organized estate plan that supports those you leave behind.
1. Maintain an updated last will and testament.
The anonymous person who inquired about estate planning mentioned having a will, which is a formal document called a Last Will and Testament. A will is a legally binding document that allows you to communicate your final wishes after your death, such as who will:
A will isn’t just for old, rich people–every adult should have one. Your will should be updated periodically to ensure a smooth transfer of assets upon your death. Getting married, having a child, getting divorced, becoming a widow or widower, and relocating are examples of life events that should trigger you to update your will.
If you die without a will, or intestate, the state where you live decides who is entitled to your assets based on a rigid formula, which may not align with what you would have wanted. For example, if you have an unmarried partner or want to support a close friend, having a will is essential for ensuring your decisions are honored, not the government’s.
Without a will, a court appoints an administrator for you, such as the first person in your family to volunteer to handle your affairs, or someone unrelated to you. If you have minor children and die intestate, a judge appoints a guardian for them. That could lead to painful custody disputes among family members.
Consider what would happen to your minor children if you and your spouse or partner were in an accident together. If you die at the same time or if one dies and the other is incapacitated, it’s critical that you name a guardian in your will, so the court doesn’t appoint one for them that wouldn’t be your choice.
Having a will also makes the legal process of validating and settling an estate, known as probate, faster and less expensive. It gives a probate judge a clear roadmap for your wishes, minimizing questions and potential conflicts.
Otherwise, the court has to identify your heirs, locate your assets without a guide, appoint an administrator, and more. That adds a significant amount of time, legal fees, and stress for your grieving family. Therefore, do your loved ones a favor by eliminating the guesswork and giving everyone a will they can enforce during an already difficult time.
You can work with an estate attorney to create a will. However, if you have a fairly simple estate and want to create various estate planning documents quickly and affordably, consider using one of the following online resources:
2. Have a power of attorney (POA).
A power of attorney gives someone you trust, called an agent, the legal authority to manage certain tasks and assets if you can’t while you’re alive. You can always change it or appoint more than one agent if you wish.
There are different types of POAs, but a durable power of attorney is the most common. It can be used any time you’re not capable of doing routine things, like paying your bills, selling real estate, signing contracts, making insurance claims, filing taxes, or making financial decisions for yourself.
Having a POA is how the financial end of your life can continue to run smoothly if you become incapacitated or are just unavailable when something important needs to be done. Without one, loved ones typically must spend time and money to have a court appoint someone to handle your affairs, and it may not be someone you would have picked.
Sometimes, married people don’t think they need an estate plan because they have a spouse to make decisions in the event of an emergency. The problem is that jointly owned assets, such as a house or a car, generally can’t be sold without the consent of both owners.
For instance, if your spouse was hospitalized for an extended period after a debilitating accident, you couldn’t sell assets that you own together. Nor could you sell an investment that your spouse owns in their name alone. Married couples and domestic partners should generally grant each other durable power of attorney to avoid financial restrictions in the event of a crisis.
If you have any questions or a complex financial situation, use an estate planning attorney to create a POA. But if you simply need a POA template, the online legal resources that I mentioned above can make it easy and affordable to create.
3. Create healthcare documents.
Healthcare documents are often referred to by various names, including healthcare surrogate, healthcare proxy, healthcare directive, and healthcare power of attorney. It allows you to designate someone or a group of people to make medical decisions on your behalf when you’re unable.
Imagine you’re in a serious accident and become mentally incapacitated. Having an executed healthcare surrogate would allow your agent to admit you into a healthcare facility or to apply for government benefits on your behalf.
Another important medical document is a living will. It clarifies your wishes regarding specific medical treatment and end-of-life situations. For instance, with a living will, you can specify whether you would want to be kept alive using mechanical ventilation or with artificial nutrition and hydration. It’s a set of instructions for your healthcare providers to follow in situations outlined in the document.
Having both a healthcare power of attorney and a living will allow you to provide your agents and doctors with instructions on how you wish to be treated. But a living will only apply when you’re facing death, so you need to have both documents in your estate plan.
In addition, having a HIPAA (Health Insurance Portability and Accountability Act) release allows healthcare professionals to disclose information about you. The law protects your medical privacy. Therefore, some hospitals won’t discuss your medical situation, even to a healthcare proxy, without a signed HIPAA release form.
Again, if you need help creating these healthcare documents or would like advice, consider consulting an estate planning attorney for assistance. However, various online legal resources make it easy and affordable to create those documents.
4. Update beneficiary information.
While everyone should have a will, certain assets don’t get transferred by a will during the probate process. They include employer-sponsored retirement accounts (such as 401(k) or 403(b) plans), IRAs, annuities, and life insurance. The next owner will always be determined by the beneficiary designation form, not your will.
Review your beneficiaries periodically to ensure they accurately reflect your wishes and that the designated person or persons are still alive. Also, name contingent beneficiaries in addition to a primary beneficiary to avoid potential problems.
Adding or changing a beneficiary is usually as simple as logging into an online account and saving the changes or downloading a form that needs to be completed. Contact your account custodian if you have any questions about who your beneficiaries are or want to make changes.
Getting married, divorced, having a child, or losing a family member are significant life events that warrant reviewing the beneficiaries for all your financial accounts.
RELATED: How to create a disaster-proof financial life
5. Consider life insurance.
And speaking of life insurance, it’s an essential coverage if you have dependents, such as a spouse, partner, children, or parents, who would be hurt financially by your death. Inform your beneficiaries about any policies you have and keep the details organized in a central file or an online spreadsheet.
Term life insurance is quite affordable, costing a few hundred dollars a year for $500,000 of coverage, if you’re in relatively good health. You can apply for coverage at an online site, such as Policygenius.
6. Make funeral and burial decisions.
A task that doesn’t cost anything but can alleviate a burden on your heirs is putting your instructions for funeral and burial plans in writing. In most states, letters of instruction aren’t legally binding, but they can provide comfort to grieving family members who may be unsure about your wishes.
Your preparation and written decisions could include:
7. Consider credit sources.
Having a source of credit that your beneficiaries can tap, such as a home equity line of credit (HELOC), could be helpful if they need it to cover your medical bills, final expenses, and any associated legal bills. Otherwise, they might have to sell their own assets or take on debt at an inopportune time.
The fewer liquid assets you have, such as cash in the bank, the more valuable a credit line could be in a pinch. Also, remember that if you don’t want financial accounts to get frozen until going through a potentially lengthy probate process, you can set them up as a TOD, or transfer on death. That allows a beneficiary to receive them directly after your death, bypassing probate.
8. Have a business succession plan.
If you’re an entrepreneur or run a business, it’s essential to have a business succession plan in writing. It may include long-term successors or temporary managers who take over until the business is sold or a more permanent solution is found.
Depending on the size and type of business, a succession plan could take longer or be more complex than other parts of your estate plan. If you need help, get legal advice to ensure your heirs aren’t left in a difficult situation or are unaware of how best to proceed.
ALSO LISTEN: How do I set up my own business?
9. Build a beneficiary file.
All of these documents and components of your estate plan should be centralized in a beneficiary file or book. It could be a digital file, a physical notebook, or a binder where all the information your beneficiaries need to know is organized and clear.
Ensure that the executor of your will and key loved ones are aware of the file and its location. You may want to keep a copy in a secure location, such as at your attorney’s office, and in a fireproof safe or locked filing cabinet at home.
Essential records you might add to the file or book include recent income tax returns, your updated will, life insurance policies, financial account names and numbers, loan documents, deeds, property titles, and your financial advisors. Yes, aggregating all this information in one place may take some time, but it doesn’t cost anything and is an incredible gift for your heirs!
It’s much easier to prepare for a potential crisis than to recover from one that blind sides you. Additionally, after a tragedy occurs, it may be too late to make some of the important decisions and complete documents that I’ve reviewed here. Having your estate plan in place will give you and the anonymous listener peace of mind, knowing you’re as prepared as possible in the event of something unexpected.
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That's all for now. I'll talk to you soon. Until then, here's to living a richer life!
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