Do you have estate planning goals for 2022?
For most people, an estate plan consists of a last will and testament, with perhaps a few funerary wishes or personal requests. The simpler, the better.
But comprehensive estate plans – with multiple documents and beneficiary designations – are not solely within the purview of the rich and famous. It’s time to highlight the importance of a complete estate plan for any family, from preserving and growing wealth after death to protecting one’s dignity in the end.
Finding Guardians for Your Dependents
If you have any minor children or dependents, it is crucial to be in the clear about who would continue raising them should you die. Furthermore, you must make certain that your choice of guardians is known and respected.
Guardianship designations also serve to remove any ambiguity surrounding the task of caring for your underage dependents. Aside from a separate designation, a guardian can also be named within a last will and testament.
In the absence of a will or guardianship designation, potential or interested parties must step forward and petition to be named guardian of a surviving dependent via the local courts.
Managing a Minor’s Inheritance
It’s one thing to be responsible for raising and caring for a minor, and it’s another thing to be responsible for their share of the inheritance. In the absence of any other estate planning document, a minor’s chosen guardian or conservator will also be chosen to manage their inherited wealth until they are of age.
But there are a few concerns to be had here. You may trust the judgment, experience, and unconditional love of a close relative when it comes to caring for your child, but you may not feel like they are best equipped to manage and grow your child’s inheritance in the years leading to their adulthood.
Alternatively, you may feel that the age of majority is too young to fully inherit what you’ve decided to leave behind for your child – and wish for a way to further manage their wealth until they’ve matured further, well into their twenties, or after college.
That’s where a trust might come in handy. Trusts hold anything funded into them for a designated beneficiary while being managed by an assigned trustee. Unlike wills, trusts go into effect the moment they are created. You can work with a professional to draft a trust that would manage a designated portion of your wealth for the benefit of your minor child, paying them dividends from the trust’s income over time, before finally bequeathing the full contents of the trust upon fulfillment of some prerequisite milestone (be it a certain birthday or event in your child’s life).
Making the Most Out of Life Insurance
Life insurance policies can be a powerful asset for many breadwinners looking to bring their family closer to financial security after their passing. Life insurance policies also help provide financial assistance to a family after losing a significant source of household income. Yet ironically, a life insurance policy can lead certain estates to pay much more in taxes than they otherwise would have.
By completely separating the payout of your life insurance from the rest of your estate, you eliminate the risk of exceeding any thresholds for state or federal estate taxes, and even protect your life insurance payout from old debts and creditors coming to collect. This is accomplished through an irrevocable life insurance trust.
Setting Up a Power of Attorney
Powers of attorney are useful documents that can be written to provide broad or limited privileges to one or multiple people acting as representatives, or “agents”, of the document’s principal.
What this means in practice is that a power of attorney grants someone the ability to make important financial or healthcare decisions in your name. In general, powers of attorney only go into effect while the principal is also conscious, communicable, and available. They can be used to, for example, give a close friend or sibling the right to go and purchase a home in your name while you’re out of the country.
But a durable power of attorney provides a crucial estate planning advantage by giving a loved one the ability to act on your behalf while you are incapacitated, but not dead. These can be applied broadly to allow someone to act on your behalf or be limited to very specific circumstances, such as purely medical decisions, or managerial decisions in the family business.
Disavowing Extraordinary Life Support Measures
Another important estate planning goal for end-of-life care is the advance directive, or the living will. This document allows you to specify and approve/disapprove specific medical procedures and measures that doctors may consider taking over the course of your treatment.
These are especially valuable for people with progressive illnesses, or chronic lifetime conditions, which may one day require making a hard choice regarding life support or controversial/experimental treatments. In the absence of such a document, your doctors will have to convene with the next of kin. You can remove that burden from your loved ones and ensure that your own will is done regarding your final fate by creating an advance directive.
Making a Financial Dedication to a Cause
An estate plan allows you to not only give in life but also continue giving in death. Charitable trusts are a powerful tool if you wish to continue dedicating resources to causes and organizations you have supported all your life, leaving a lasting and positive impact for years to come.
Keeping Your Plan Up to Date
No estate plan is ever unequivocally “finished.” An estate plan describes a series of documents that exist in a continuum, updated regularly until the grantor or creator of the plan dies.
If you’ve sat down and created a comprehensive estate plan with a professional of your choice, ask to be reminded to review and revise your plan at least once every few years, or every time a life-changing event takes place – from a family coupling to a breakup, the death of a close loved one, or the birth of a new heir.
Our plans, whether in relation to whom we wish to bequeath our wealth, or in what form we seek to bequeath it, can change over time – and the last thing you want is for your estate plan to be a poor reflection of your last will and wishes before dying. Keeping it up to date can save your family a lot of heartache and grief, and will help ensure that your financial legacy passes on exactly like you would have wanted.