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Nobody wants to think about how their loved ones will cope when they die, but it’s important to plan effectively to ensure a smooth transition of your wealth and worldly possessions – even if you’re young or feel like you don’t have much to leave behind.
An estate plan is a collection of legally binding documents that ensures you are in control of what happens to you, your assets and any dependents you may have if you become disabled or when you die. The plan can include a will, power of attorney forms, trusts and more.
“Having an estate plan is like carrying the umbrella for the inevitable rainy day,” said Mary Elizabeth Anderson, a partner at law firm Wyatt, Tarrant & Combs LLP in Louisville, Kentucky.
Write a will
The most commonly known will is called a last will and testament, which is a written statement of who should get a deceased person’s assets, Anderson said. It can also include who will take guardianship of dependents or pets.
Assets can include items as varied as real estate property, cars and family heirlooms.
In the US, the requirements for a will to be deemed valid vary state to state, and you should consult with a lawyer to ensure yours is legally binding.
Without a will, state laws govern who receives your assets and may not carry out a person’s intentions, Anderson added. This could lead to a long, headache-inducing process for loved ones in court.
Paige Hardin-O’Brien, 32, created an estate plan three years ago, making sure to include a few prized vintage furniture pieces in her will. She is an embryologist at the Kentucky Fertility Institute in Louisville and one of Anderson’s clients.
Hardin-O’Brien also made sure to include her medical wishes for end-of-life care, information that is typically included in a living will. Unlike a last will, this legal document outlines plans for when you’re still alive. It gives instructions as to how you want to be medically treated if you do not have the ability to speak for yourself in the event of a life-threatening emergency and other serious medical scenarios.
As a registered organ donor, she also included a medical clause stating that she wants her organs donated when she dies.
Power of attorney forms
While a living will states what your medical preferences are, health care power of attorney forms grant permission for someone else to make decisions on your behalf if you are unable to do so, said Ray Prather, a partner at law firm Prather Ebner LLP in Chicago.
Hardin-O’Brien designated her mother to decide if or when to take her off life support, were such a medical crisis to arise.
“I’m married, but I didn’t give (my husband) the permission to say yes or no because he would literally keep me on life support until forever,” she said.
Financial power of attorney forms, meanwhile, designate someone to oversee your property, access your bank accounts and manage your finances should you be unable to yourself, Prather said.
Trusts are another important part of an estate plan. They are an agreement to hold assets for the benefit of another person, Anderson said.
They can be especially useful for adults wanting to pass assets to children under the age of 18.
Victoria Fuller, 32, created a trust after she found out she was pregnant to ensure her assets are properly allocated should both she and her husband die while her children are underage. She is an associate at Wyatt, Tarrant & Combs LLP and is also a client of Anderson’s.
Without a trust, her kids would likely inherit all the money at once, Fuller said.
Minors generally cannot own assets like real estate, however, so any relevant property must be held by an adult or third-party institution until they can legally inherit it, Anderson said.
Fuller’s trust would give money to her children in smaller payments as needed to ensure it would not be depleted before they become adults. When her children turns 18, they would have more access to the money, she explained.
Other parents prefer to wait until their child is more mature – between the age of 25 and 30, for example – to allow them access to their assets, Anderson said.
There are also options other than trusts for adults to manage their assets with regard to minor children. Anderson recommended parents or guardians speak with a lawyer to determine the best option for you.
With all this legal jargon, it can be overwhelming knowing exactly when and how to begin the process.
Life events – like turning 18 and going to college, getting married, changing careers, or moving states – often trigger estate planning, Anderson said. Pregnancy is also a popular time to begin the process, as in Fuller’s case.
Estate planning can be complicated, so it’s OK to seek help from trusted experts who can navigate through technical areas that could drastically change the plan’s outcomes, Anderson said.
Prather recommended everyone who is creating an estate plan work with a reputable lawyer to ensure their documents are legally correct.
In addition to updating their plan after a major life change, he suggested everyone meet with their lawyer every three to five years, regardless of their circumstances, to review their plan.
“Just because nothing has changed in your life during those three to five years doesn’t mean the law hasn’t changed,” Prather said.
The price of drafting an estate plan varies widely depending on the complexity of the plan, how much the lawyer charges and what city they’re located in, he said.
Prather’s firm charges by the hour, and his typical estate plan costs between $2,000 and $3,000. However, he is in Chicago, which could make the process more expensive than in other smaller cities, he noted.
While the price may be steep, it’s a good investment because it makes sure everything you worked so hard in life for is properly taken care of when you’re gone, Hardin-O’Brien said.
“You go to a job to buy all this stuff or to put money into a house and then you die, and it all goes away,” she said.
Estate planning can be quick
Estate planning resources
Hardin-O’Brien’s plan took only a couple weeks to draft, and the process was very simple, she said.
It can be intimidating going into the planning because you think you already need a formulated plan, but the attorney works with you every step of the way, Fuller said.
Knowing that everything is in order for her children, Fuller’s estate plan gives her peace of mind.
“I want to make sure that they’re in good hands and that they’re going to be well taken care of and supported after I’m gone,” she said.