Estate planning 101

KJ: I’m not an attorney, so you should speak with a licensed professional to help walk you through all of these steps, but this post is designed to be an introductory discussion on what you need to know about your estate plan. Let’s start with some of the basics.

What is an estate plan?
An estate plan is a fancy name for the process by which your assets can transfer to your heirs be it children, spouse, cousin, friend, or charity. No one knows better than you your wishes for after you pass away, so the clearest you can make this, the easier the transition for your surviving loved ones. Decisions are already so difficult to make when you are mourning the loss of a loved one that any additional hardship can make the process even less bearable.

Who needs an estate plan?
Everyone! Whether you have 10 children, no children, are married or aren’t married, you need an estate plan. If you don’t have one, then it is likely your assets or wishes won’t be carried out as you desire. If you pass away without a will, your state has laws for how your assets will transfer to your surviving relatives/heirs. Why trust that the state would know how you wanted your assets to be distributed?

The basic components
Most estate plans involve several key documents:

    Will – this is the document that outlines how your assets will pass to heirs. This only includes assets that go through a process called “probate” wherein the courts work to transfer the title (ownership) of your accounts, real estate, and other assets to the survivors as you wished.
    Ancillary documents – this is a fancy term for most other estate planning documents. Most people will at a minimum need a designation of a power of attorney to act on their behalf in certain situations and advanced medical directives (also known as a “living will”) wherein you specify who can make or receive medical decisions on your behalf.
    Retirement plan beneficiary designations – believe it or not, the beneficiary designations you have for your IRA, 401(k), or even a designation on a bank account transfer outside of your will. If you name your spouse as the beneficiary of your IRA and then in the will specify that you want your brother to receive the assets, then the IRA beneficiary document will supersede the will. As such, it is very important to make sure this information is up-to-date and listed properly. I recommend revisiting at least every couple of years and to make any adjustments needed. Do note that many solid estate plans have been compromised by so many assets transferring outside of probate through the use of beneficiary designations that there ends up being insufficient assets to satisfy the transfers specified in the will.
    Personal property memorandum – this is usually a handwritten note where you specify who may receive your household goods (who is going to inherit your china, your silver, etc.), and in order for this to be valid, you need to specify in your will that you may designate such assets via the use of this document. This can help reduce clutter in your will if you have very specific wishes regarding furniture or other personal property, plus it prevents you from having to constantly change your will just to make a change to ‘well, I want cousin Timmy to have the sofa now.’ The entire memorandum must be in the your handwriting. A typed note signed by you will not be honored (at least in Texas).

Practice what you preach, right? Of course! Well, even though I work in the financial industry, we need to work on getting all of these documents in order. That’s one of our goals for 2013 to get this taken care of. For those of us that are married and don’t have children, it makes getting a will less of a need (though it’s still very important). If you have children, then at a minimum you should get your estate plan in order, so you can appropriately specify asset transfers and designate a guardian for your minor child.

    Do you have your estate plan in order?
    Tell us about what you learned throughout the process.

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