A NO NONSENSE GUIDE TO ESTATE PLANNING BY LIFESTAGE
As humans, when we don't know what to do, we procrastinate and do nothing. This is true about everything - including estate planning. Too many choices cause inaction. Many of us have put off getting an estate plan because the process can seem overwhelming, too salesman-like, and let's face it - too confusing. Estate planning doesn't have to be this way. In this article, I cut through the noise and give you straight, unvarnished information about what type of estate planning documents most people need at different stages of life. Keep in mind, this is general educational information only - not legal advice for a specific individual. Your situation may differ.*
First the basics. Here are the most common estate-planning documents:
Durable Financial Power of Attorney (DPOA)
Health Care Power of Attorney (HCPOA)
Advance Directives (Living Will)
Now, that we have that out of the way, here are the minimum documents most people need at each stage of life.
18 Years of Age to Parenthood - Most critical document (HCPOA)
As soon as you turn 18, your parents can no longer make healthcare decisions for you and you need a healthcare power of attorney in order for a parent or other trusted person to make medical decisions for you if you become ill or are in an accident. This document is critical for eighteen-year-olds heading off to college.
Your First Job and Your First Home - Most critical documents (HCPOA and DPOA)
Assuming you already have your HCPOA, adding a DPOA to your estate planning allows you to name a parent or trusted person to manage your financial affairs if you are temporarily incapacitated. Now that you have some assets of your own, not only is a DPOA helpful but it will avoid the need for a court-appointed guardian if you are incapacitated and unable to manage your financial affairs during your lifetime. Hint - If you don't want your parents or closest relative to inherit from you, you also need a Will.
Your First Serious Relationship - Most critical documents (HCPOA, DPOA, Will)
If you are in a serious relationship, it may be time to rethink whether you still want your parents to make medical and financial decisions for you and inherit your property if something happens to you. Without a will, your parents or closest relative will inherit your property and leave your significant other out of the loop. If you want your property to go to someone other than your parents or closest relative, you must have a will. You may want to update your HCPOA and DPOA at the same time. Most exprienced estate planning attorneys will provide you with an estate planning package that includes all of these important documents. Obtaining these documents separately may be more time-consuming and expensive.
Parenthood and Marriage - Most critical documents (Will, DPOA, HCPOA, Beneficiary Designations)
Now is the time for a will. If you have children, you absolutely must get a will. No more excuses allowed! A will is critical for parents because it allows you to name a preferred person to raise your children if something happens to you. It also permits you to designate a guardian of the estate/conservator to manage your childrens' money or other financial assets. Why is this so important? Because minors cannot inherit money outright. Therefore, even if they inherit from you under intestacy, minors cannot access inherited money before the age of majority set by state law. If you don't have a will and haven't named someone to manage money for your children, money inherited by your child can end up being paid into an interest-free or low-interest bearing judicial account until he or she turns eighteen. This money won't benefit your minor child and won't even earn a decent rate of return.
Don't disinherit your spouse. If you are married, you also absolutely need a will. No more excuses here either! A will lets you leave everything to your spouse rather than allowing intestacy to split assets between a spouse and your minor children or a spouse and your parents. (Yes, if you are married and don't have a will in NC, your parents could end up inheriting part of your property under intestacy at the expense of your spouse.)
Here are times to rethink and update your existing plan.
Divorce and Remarriage - Most critical documents (New Will, new DPOA, new HCPOA, Revocations, New beneficiary designations, Pre-nuptial Agreement)
You may be surprised by some things on this list. For example, you probably noticed I included beneficiary designations as estate planning documents. These are an often-overlooked part of estate planning and the failure to update a beneficiary designation has resulted in numerous accidental windfalls.
Now is the time to execute a new will and powers of attorney. This insures you have revoked your prior documents and prevents accidental windfalls to the wrong people!
Before getting remarried, consider a pre-nuptial agreement. A pre-nup protects your estate plan by adding certainty. If expectations are set early in new relationships, your family members from all relationships are more likley to honor your estate plan and not challenge your will or trust.
Mid Life 30's to 60's - Most critical documents (Revocable or Irrevocable Trust, Will, DPOA, HCPOA, Living Will, Business Planning)
Asset protection is now coming to the forefront of your estate plan. Fifty isn't old by any means but you're a big dog now and need to review your estate plan and protect your future and your loved ones' financial security. If you didn't purchase long-term care insurance in your thirties or forties, fifty is a good time to review your options. Consider adding a trust to your estate plan to control assets after you're gone and avoid probate.
Do your adult children manage money wisely? Are you afraid their divorcing spouse may steal their inheritance? Do you own more than one piece of real estate? A trust can help with all of these situations.
Have you started a business? If so, an LLC or corporate entity can protect you from business liability. Ask yourself, what will happen to your business if you're gone? Who will run it and who will profit from it? Business succession planning allows you to make these choices and it should be part of your estate planning. The last thing you want is for your business to go through probate if something happens to you. Ask an estate planning attorney to review your Will in light of your current family, health, and financial situation.
Now is also the time to consider a living will. A living will enables you to make choices about whether you want life-prolonging medical interventions in the event of a serious illness or injury. Think of it as you speaking directly to your physician about what you want. This one document can take the burden and stress off your loved ones so they don't have to guess at what you would have wanted if a crisis happens.
Turning 70 and Beyond- Most critical documents (Irrevocable Trust, Revocable Trust, Will, DPOA, HCPOA, Living Will)
By now, asset protection should be front and center of your estate planning. Perhaps you are concerned about how to pay for long-term care and the potential problem of Medicaid Estate Recovery but feel you have at least five years of independent living left. If so, talk to your estate planning attorney about an irrevocable trust in the event you need to go into a nursing home and apply for long-tem care Medicaid in the future.
Alternatively, if you have too many assets and are over the estate tax exemption, you may need an irrevocable trust to remove assets from your taxable estate. At this life stage, regardless of whether you are at the low or high end of the asset spectrum, the asset protection pros of an irrevocable trust likely outweigh the inflexability cons.
How else can you protect assets? If you are married, make sure your will includes a stand-by supplemental needs trust for your spouse. This one provision can save your assets from Medicaid estate recovery in the event your surviving spouse is receiving long-term care benefits at your death. If you don't already have a living will or your living will is several years old, revisit it. Sometimes priorities change regarding life-prolonging measures. You may want to live to see your grandchildren graduate or get married. Your ideas about quality of life may have changed too. Now is the time to make adjustments as needed. It is also important to make changes to your estate plan while you still have the capacity to execute documents. Waiting too long can result in unnecessary challenges to your estate plan by unhappy family members. It can also mean you are stuck with outdated docuemnts and can't update them at all because you lack the capacity necessary to do so.
As always, keep in mind, your situation may be different. Only an attorney you hire in your state can tell you what's best for your situation. For more great educational information about estate planning, take a look at our valuable book and articles. Our materials are full of tips and advice. You can download your free copy of our book here. For help with your legal questions, please contact us to schedule a time to speak with our attorney.
*Notice - This information is for educational purposes only and does not constitute legal advice. Reading it does not create an attorney/client relationship.
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