Leaving a legacy: Why everyone needs an estate plan

Few people want to talk about their will and other estate plans or what will happen to their loved ones after they’re gone. While it’s an understandably sensitive and difficult subject to broach, a lack of planning causes a lot of families to be caught off-guard if an unexpected tragedy occurs.

But establishing an estate plan early and readjusting it as needed throughout your lifetime can help you prepare for the future and leave a legacy for the people you love.

“If you don’t have a plan, you’re going to fall into what are the default rules in that state,” says Jennifer Lee Schooley, attorney and owner of Schooley Law Firm in Richmond, Virginia. “And you might not like those.”

Having an estate plan in place can protect surviving family members and help eliminate conflict and will allow your loved ones to know your precise wishes for your medical care, assets and final arrangements. An estate plan also helps the bereaved focus on honoring your memory and working through their grief instead of dealing with emotionally charged disputes with family.

What is an estate plan?

Your estate is the accumulation of everything you own: your car, real estate, checking accounts, savings accounts, furniture, life insurance, investments, and personal possessions such as artwork or jewelry.

An estate plan encompasses your instructions for what you want to happen to everything you own after you die. Beyond that, an estate plan can also specify burial instructions, help lay out plans if you become disabled, and allow you to prepay for your final expenses.

Elements of a well-rounded estate plan

1. Your will. A will outlines how your assets will be distributed, who will be the executor of your estate, who the guardian of your children will be, and who will take care of any pets. Without a will, the government gets to decide how everything is split and who takes guardianship of children and pets, a process that can vary by state.
2. Beneficiaries. Not all assets pass to your surviving friends and family through your will. If you have a 401(k), IRAs, or life insurance policies, those can all pass to beneficiaries designated within those specific accounts.
3. A durable power of attorney (DPA). A DPA can serve as your financial proxy if you are living and can no longer manage your affairs.
4. An advance medical directive. This is the combination of a DPA for healthcare, a living will, and HIPAA release forms. An advance healthcare directive describes what medical procedures you do or don’t want and who has the right to make medical decisions for you if you can no longer make them yourself.
5. Life insurance. Life insurance might be a good option to include in your estate plan if family members depend on your paycheck. Life insurance can help take care of your family and loved ones financially after you die. Not sure how much coverage you need? You can use Bankrate’s Life Insurance Calculator to figure out what size plan will work best for you.
6. Trusts. Living trusts allow you to hold assets for beneficiaries while dictating how and when they receive those assets. Different types of trusts can help your family avoid processes like probate or estate taxes, so do your research as to which type will work best for you.

Why do you need an estate plan?

Most of the time, estate planning isn’t a priority until people hit retirement or a certain income level. However, everyone can benefit from establishing an estate plan early in life, especially if you are the head of the household or have a family depending on your paycheck.

Ensure your wishes are carried out

One of the main components of an estate plan is your will, which is where you leave instructions for after you die. The will shows who receives which of your available assets, who will take guardianship of your children, who will provide for any pets you may have and more. Your estate plan can even outline how you hope to pass on aspects of your life such as religion, education and other values.

Protect your family

When you don’t have an estate plan, your family will be forced to jump through quite a few government hoops in order to distribute your assets. An estate plan can minimize taxes and expenses and help your loved ones avoid legal hassles. Plus, an estate plan may be designed to prevent your assets from becoming public, which can protect your family’s privacy.

Leave a legacy

Whether you’re providing financial security, planning for your final memorial or burial services, supporting a cause you care about, or passing on traditions and values, an estate plan helps you leave behind a legacy for your family to hold onto. Planning ahead and keeping your will and other legal documents up-to-date will ensure that your family and loved ones are well taken care of, no matter what.

How to create a well-rounded estate plan

Creating an estate plan may feel uncomfortable, but having one in place will ensure your assets are properly distributed and lessen any tax burdens for your chosen beneficiaries, which can be your children, charities, or other entities. Estate planning may feel like it’s only for the wealthy, but an estate plan covers a lot more than your finances.

Necessary documents

A well-rounded estate plan involves a lot of different documents that come from different sources.

Keeping these documents updated and organized can save your family and your executor a lot of time and stress:

• Your will
• Trusts
• Real estate deeds
• Bank account information
• Mutual funds or safe deposit box documentation
• Information about cryptocurrency you hold
• Certificates for stocks, bonds, and annuities
• Information on retirement plans: 401(k) accounts, IRAs and pensions
• Funeral prepayment plans
• Instructions for any final arrangements
• Your debts: credit cards, loans, mortgages or utilities
• Tax information
• Insurance policies
• Any information on military death benefits

In addition to keeping these documents organized, make sure that your DPA and the executor of your estate are legally allowed to have access to these documents.

Hire a professional

To get started, you’ll appoint an estate attorney who will walk you through the steps of creating your estate plan. Together, you’ll write up the legal documents that outline your posthumous plans. Once the plan is in place, keep the documents organized and in a safe place and ensure that your executor and power-of-attorney are legally able to access and execute the documents.

Things to consider

Putting together your estate plan involves a lot of moving parts, and there are a few things to consider before you jump into the process.

Debt management

Americans typically have substantial debt when they die. According to December 2016 data from Experian, about 73 percent of Americans died with debt, an average of nearly $62,000. The vast majority of that was mortgage debt, though other debt amounted to almost $13,000.

When you die, debt is taken out of your estate’s total worth. This can include credit card debt, personal loans, tax debts, outstanding auto loans, student loans, and even mortgages.

If you have a spouse who cosigned a loan or who is named on any credit accounts, that debt will then roll over to them. However, personal loans and credit card debt that are not in anyone else’s name can end up tying up your assets before they are distributed to family and loved ones.

Watch out for bank accounts

Be sure that you record the names of all your bank accounts. If you’ve moved or opened an account and forgotten about it, it can be easy for that account to get lost after your passing.

If you have a checking or savings account or a CD, naming a beneficiary on those accounts will supersede anything else you have written in your estate planning documents. You’re not under any obligation to name a beneficiary, but if you do, the account will avoid probate and the headaches that this process could involve.

If you don’t name a beneficiary on these bank accounts, any money in them will become part of your estate on your passing and is ultimately subject to probate.

Choosing the right DPA

One of the more sensitive subjects you have to cover while putting together your estate plan is choosing who is responsible for making financial decisions after you die or in the event you are no longer medically able. Unfortunately, choosing a relative isn’t always the right decision if they don’t understand how to properly handle your financial affairs.

Schooley says to look for the following things in an agent:

• Choose someone who is honest.
• Select a detail-oriented individual.
• They should have the ability to maintain records.
• Either the person has the financial knowledge or will find the proper people to talk to. This may include a financial advisor, accountant or attorney.

One option is to name co-trustees, with one being a relative and the other a professional such as a lawyer or financial advisor. That keeps a member of your family involved in the decision-making process, but includes someone who knows more about how to best manage your finances.

Don’t forget about cryptocurrency

Owners of cryptocurrency need to provide relevant information so that after they die their executor can access it, says Lauren Zangardi Haynes, CIMA, certified financial planner at Spark Financial Advisors in Richmond, Virginia.

“If your executor doesn’t have it, then that money is lost forever,” says Zangardi Haynes.

When to re-evaluate your estate plan

An estate plan is not something you put together and then never touch again. Your estate plan can and should be molded to fit your changing needs throughout your life.

Here are a few major life events that should cause you to re-evaluate your estate plan to make any necessary changes:

1. Getting married
2. Having children
3. Large purchases such as buying a house
4. Getting a divorce
5. The death of a spouse or child
6. Opening new financial accounts
7. Changes in beneficiaries
8. Changing jobs
9. Increasing or decreasing income
10. Inheritance
11. Moving to a different state
12. Purchasing real estate in another state
13. A major change in tax laws
14. Plans to make a large gift

You should also make sure your attorney is up-to-date on any changes in the law regarding your estate plan, including estate tax and inheritance tax laws. You may need to make changes to the technical aspects of your will or other important documents to make them legally valid once new rules go into effect.

Creating an estate plan can seem like a daunting task, especially if you are still young and in good health. However, the earlier you organize a plan for what will happen to your assets and finances after you die, the more prepared you’ll be for the unexpected. Having a well-rounded estate plan can help your family stay afloat after tragedy and help you pass on a legacy to those you leave behind.

“We just don’t know,” Zangardi Haynes says. “Life is fragile.”