Estate Planning: 9 Steps to Peace of Mind
You don’t have to be wealthy to need estate planning. Your estate is everything your own and everything and everybody you want to protect. It is well worth your time to plan for what happens to your stuff and your loved ones.
What is Estate Planning
Estate planning is
- Deciding who will be in charge during your lifetime when you can’t make decisions for yourself
- Deciding who will get what, how much, when, and how
Estate Planning: The Nine Steps to Peace of Mind
Step 1: Take Action
It is better to get started than to let this sit as something to get done later. You can make changes and fine tune the plan later.
If something were to happen tomorrow – an auto accident, household mishap, or medical incident – and leave you unable to make decision, your family will pay the price and face the problems.
Commit to creating your estate plan just as soon as possible or your family will pay the high price financially and emotionally. If you don’t act, State law will decide who makes decisions if you can’t make them yourself. State law will decide who gets your estate, how much, when, and how.
At a minimum you should create powers of attorney – Durable Power of Attorney and a Healthcare Power of Attorney. These two documents control who can make decisions and manage your property during your lifetime instead of a Judge. Without them, your family may end up in Court getting a Judge’s permission to make your decisions.
Along with these you’ll need a Protected Healthcare Information (PHI) Release and a Living Will (Advance Directive). These two documents support your Healthcare Power of Attorney.
Step 2: Decide on Your Estate Planning Goals
Different people have different estate planning goals. Some want to leave as much as possible to their children. It is up to you to decide what your goals are. You may have multiple goals and that is fine.
Here are some most common goals:
- Avoid Probate
- Take care of family financially
- Minimize taxes
- Maximize inheritance
- Protect my house from Medicaid and the Nursing Home
- Protect other real estate from Medicaid and the Nursing Home
- Prepare for Long Term Care
- Care for children with special needs. You don’t need to disown children with special needs that are getting benefits. You can arrange life so they get the benefit of an inheritance and keep their benefits.
- Take care of children with addictions, bad marriages, or credit problems
- Pay for my children’s higher education
- Make sure I’ve picked people to finish raising my children
- Spread out the inheritance so it won’t be squandered
Step 3: Pick Who Will Make Estate Decisions
If, when, something happens and you can’t make your own decisions, you need to have people you know and trust to step in and make your decisions.
If you don’t, then your family or friends must go to court and see the Judge. The Judge will decide, not you, who will make your decisions and how much power they get.
You need to pick people to manage your:
- Financial, legal, and personal affairs
- Healthcare
- Probate and final estate
Don’t think you need to name your spouse, then children in order of age, unless that makes sense.
You need to look at each person as an individual and put them where their strengths are. You need people that will advocate for you and stand up for your choices and values.
You and your spouse don’t need to have the same list!
Here are some tips:
- Will act in your best interest and on your behalf
- Able to act on your wishes
- Can separate their feelings to act on your behalf
- Knows you well
- Understands what is important to you
- Someone you trust
- Willing to discuss sensitive issues with you
- Willing to listen to your wishes
- Will advocate for you
Step 4: Take an Inventory
This doesn’t have to be a complete, detailed inventory, but you need to know what you have and what you owe.
At a minimum, you should write down what you have where. Someday, somebody will be glad that they don’t have to call every bank in the area to find your accounts.
This inventory should include, with approximate balances:
- Bank accounts and where they are
- Investment accounts and who they are with
- Retirement accounts and who they are with
- All real estate you own and where it is
- Personal belongings of significant value
- Insurance policies
- All your debts and who they are with
Step 5: Decide Who Gets What, When, How, and How Much
This step stops a lot of people from planning. They want to be fair, but they have a difficult decision to make.
You need to know you can be fair. Sometimes fair doesn’t mean even.
If you have children receiving government benefits such as SSI or Medicaid, you don’t have to disown them. There are planning techniques so they can have the benefits of an inheritance without losing their means tested benefits. And the best part is, the money won’t be used to repay Medicaid. You get to decide the ultimate destination.
If you have children with problems – addictions, credit issues, marital problems, and more you can leave their money in a trust. It protects the money. You get to decide how much and how often they get access to it. And in between draws from the trust, the trust can pay for housing, food, utilities, and more. In other words, you don’t have to cut out these children, you just have to plan for them.
If you have some children that are doing better than others, you may want to consider uneven gifting. A child that is doing well financially doesn’t need the money as bad as a child that is struggling to make ends meet.
If you don’t have children, the most common thing done is to leave the inheritance to nieces and nephews. The next most usual thing is leaving it to charity.
Finally, decide if and how much you want to leave to charities and churches.
Step 6: Avoid Probate
One way to avoid probate is to have nothing. If you don’t own anything, then there is no probate. More on this in a minute. It isn’t as hard as you think to have nothing in your name.
Or you plan to avoid probate.
A plan to avoid probate ranges from simple to complex, depending on your circumstances.
The plan that works for many people is a beneficiary plan. This plan uses mechanisms that transfer your property and money immediately without probate, skipping the courts, creditors, and Medicaid. It puts a special deed in place on your house that not only moves it to the new owners but keeps it out of the hands of Medicaid if you ever need Medicaid.
If you have more complex rules, then you can use a basic probate prevention trust to implement those rules and avoid probate.
Remember what I said about one plan is not owning anything. In a way that is what a trust does for you. You create the trust, then transfer ownership of property to the trustee. But, during your lifetime, you are the trustee meaning you maintain complete control over everything in the trust. But, the instant somebody dies, ownership immediately transfers to the next trustee in line, skipping probate because you didn’t own anything.
If you need to avoid probate and protect your children from their own bad habits, addictions, spending, bad marriage, and more, then you can use a trust designed to do that as well.
You can even make the property available to your children, and ultimately leave it to their children. With a trust, you can do many things you may think are impossible.
Step 7: Get the Documents Done and Signed
With the decisions made, it is time to go to a professional, knowledgeable, and responsive attorney to have the legal documents created. An experienced attorney will know exactly what questions to ask to make sure that you get the best plan possible for you and your family. You’ll get a plan that captures your wishes, protects you, takes care of your family, and minimizes or eliminates Judges and Court.
An estate plan may include:
A Will: A Will is a document that provides instructions to the Judge in a Court about what should happen to assets. It names the person that you want to manage the process, under the Judge’s supervision. Even if you have a trust, you should have a Will as a safety net.
A Trust: The ultimate flexibility of almost complete control of your assets during your lifetime and beyond. With a revocable living trust, you remain in control during your lifetime, then get to say what happens to everything in the trust later. All the property in the trust stays out of probate.
A Durable Power of Attorney: A durable power of attorney is a document that names the person or people you want to make personal, financial, and legal decisions for you when you can’t or don’t want to. The person you name in the power of attorney is usually called your agent or attorney-in-fact.
A Healthcare Power of Attorney: This is a Durable Power of Attorney for your healthcare. It names the person or people you want to work with doctors and other healthcare professionals to manage your healthcare and treatment plan.
Step 8: Fund the Estate Plan
Whether you use a Will based plan (Beneficiary Plan) or a Trust based plan, you still have some steps to finish up.
With a Beneficiary Plan, you’ll need to go to the bank, financial advisor, DMV, retirement advisor, and a few other places to setup the beneficiaries on your accounts like you want. This plan depends on having beneficiaries created and properly maintained.
With a Trust based plan, you’ll need to either setup the beneficiaries or re-title assets to the trust. You’ll need to visit the same places – the bank, financial advisors, DMV, and more.
Anything that doesn’t have beneficiaries set or retitled is subject to Probate.
Step 9: Review and Maintain the Estate Plan
Things happen that will require changes to the plan.
A few of these events are:
- Birth or adoption of children
- Death of a spouse, children, or somebody on your powers of attorney
- Adding people to the plan or changing percentages
- You get married or divorced