Estate planning can be a difficult topic to discuss. After all, we’re dealing with what happens to your money after you have passed away or become incapacitated. But estate planning plays a crucial role in every person’s financial plan and can have a big impact for the next generations.
What is estate planning?
In short, estate planning is outlining what will happen with your assets when you have passed away. Estate planning can come in many forms; many people have a Will and powers of attorney (financial and health care), and some include a trust agreement or use beneficiary designations to govern the ultimate disposition of the assets.
There are several ways to accomplish an estate plan, and some documents that are an essential part of every estate plan. These documents can include:
– Last Will & Testament
o Your Last Will & Testament (or “Will” for short) has several important pieces to it. A Will names who will settle your final financial affairs, expresses your wishes for who receives your assets, and names guardians for any minor children or pets.
– Financial Power of Attorney
o While a Will governs what happens to your money when you have passed away, a Financial Power of Attorney plays an important role while you are still living, but unable to handle your own financial affairs. This can be the result of incapacity, or it can happen because you are traveling and unable to handle certain transactions.
– Health Care Power of Attorney
o According to the CDC, there are 51.4 million surgical procedures in the US each year. Every surgery comes with risks, and many hospitals require that a patient have a health care power of attorney completed before undergoing an operation. A health care power of attorney names the person that you would like to make medical decisions on your behalf when you are unable to, like during a surgery.
– Living Will/Advanced Medical Directive
o This document goes by different names, but they are all meant to accomplish the same thing: help your medical power of attorney make important decisions regarding your care. One of the most important decisions that can be made is what to do regarding life support; it can be a decision that weighs heavily on the loved one who must make the call. A living will can help ease the burden of that decision by outlining the care you wish to receive.
– HIPAA Directive
o If you are hospitalized, who can the doctors talk to and provide updates on your situation? Privacy of your health information is very important, and doctors take this very seriously. Your HIPAA directive outlines who the doctors can share important medical information with. This is particularly important for parents of children who turn 18, when health care professioanls may be prohibited from sharing important information without a HIPAA Directive in place.
– Trusts
o While the documents just reviewed are included in just about every estate plan, there can be situations where the baseline just isn’t enough. A trust can either be completed through your will (known as a “testamentary trust”) or it can be a separate document that comes into effect during your lifetime. Either way, this is a very useful and flexible estate planning tool that can be used to ensure proper care and protection for your loved ones.
Why do I need an estate plan?
No one knows all that life holds. There can be some wonderful surprises, and there can be some scary curveballs. In every instance, it helps to be prepared. While estate planning can be a more somber process, it is one that can have the greatest impact of all the planning you do during your lifetime for the next generation. The difference between a good estate plan and a poor one (or a lack of one) can be astounding.
You spend so much of your life providing for those around you, and making their life the best you can. Continue that great work by including estate planning in the process.
Now that we’ve covered some of what estate planning can entail, we’ll dive into some of the mistakes that a good estate plan can help avoid.
Stephen Fletcher, MBA, CFP® is a Financial Planner at EVOadvisers.
EVOadvisers is a fee-only, Registered Investment Advisor (RIA) founded in 2006. EVOadvisers is located in Richmond, VA and services clients locally and nationally. EVOadvisers offers transparent, easy to understand, financial planning and investment management services to families, busy professionals, and entrepreneurs who have achieved a stage in life that requires more than a 401(k) to manage.