In 2009, Tennessee Titans Quarterback Steve McNair was a victim of homicide. He left behind a $20 million estate, a wife and four children, but no written will. Based on Tennessee’s intestacy laws, McNair’s wife received a small portion of the estate, while the remaining was distributed among the two children he had with his wife and the two he had outside of marriage. Many others, including McNair’s mother, received nothing! It’s unlikely McNair would have wished for that.
Conservative estimates place the number of adult Americans who have no will at anywhere from 50% to 65%. Even more believe estate planning is just about drafting a will. But there’s much more to estate planning. A well-written estate plan ensures that all your assets are seamlessly transferred to your heirs in the event of death, addresses who can make your medical or financial decisions if you are incapacitated, and details what kinds of life-saving measures you want taken if you are unable to express your wishes.
Many people believe that estate plans are only for the wealthy. That’s inaccurate. They are for everyone who is 18 or older. Here are some of the steps you’ll take as part of estate planning:
Evaluate your assets
List your tangible assets
Take a moment to list out all of your valuables like houses, vehicles, collectibles, art, antiques, computers, equipment, and so on.
List your non-tangible assets
Your non-physical assets include brokerage accounts, IRAs, 401(k) plans, life insurance policies, bank accounts, other policies like auto, long-term care, homeowners, and disability. You should also list the contact information for the companies holding these intangible assets.
Itemize your debts
Make a list of all the obligations you have, including credit cards, mortgages, auto loans, and any other debts. Again, list the contact information for all debtors and, if possible, the debt conditions.
Take note of your membership lists
Do you belong to groups like the American Association of Retired Persons (AARP) or The American Legion? In some instances, at no added cost, these organizations have insurance benefits for their members. If you die, your beneficiaries may be eligible to collect those benefits.
Draft a will
A will is a document that defines how your assets should be distributed in the event of death. You can also designate guardians for your children, if they’re minors, and for your pets. Furthermore, you can list charitable organizations you would like to receive a share of your assets.
When drafting a will, make sure that it is consistent with other documents. For instance, if you’ve named your spouse as the beneficiary of an insurance policy, make sure your will reflects the same. Simple mistakes can result in unwanted complications.
In your will, you will designate an executor who will manage the disposition of your assets after you’ve died.
One final piece of advice on drafting a will: Be sure to review and update, as needed, at least every two years and after any major life change. You wouldn’t want your spouse to find out after your death that the beneficiary of your retirement account is your former spouse because you forgot to update your will.
Durable Power of Attorney
What happens to your assets if you suffer mental incapacitation? A durable power of attorney (POA) gives power to your agent to manage financial and legal decisions on your behalf. Your agent can be your spouse, a friend, a family member or a trusted adviser. Just ensure that the person is competent and trustworthy, and that he or she knows how you would want your affairs handled. A POA can be revoked at any time, including if you recover. It is void when you die.
Healthcare Power of Attorney
A healthcare power of attorney (HCPA) designates a person who will make health care decisions for you should you become incapacitated. Make sure you choose someone you trust to make the decisions you would make were you able to do so. Be sure to discuss your wishes with your designee, and have a backup agent designated in case of any unforeseen circumstances.
Designation of Beneficiaries
Remember when we talked about non-tangible assets? Assets like 401(k) accounts and life insurance policies typically require you to specify beneficiaries. That way, your possessions can be easily transferred to that person. If you die without stating your beneficiary or specifying one in your will, a judge may decide, based on state law, how your assets will be distributed. Let’s face it, no judge will make decisions precisely as you’d like them made.
Letter of Intent
A letter of intent contains important information your friends or family will need to wind up your affairs. At a minimum, it contains things like passwords, pins, location for safe deposit box keys and other important possessions. At an emotional level, it can be a last message to your loved ones, and can provide details about a funeral, burial, cremation or other plans. Once written, you should give this to your executor.
While a letter of intent is not enforceable in the court of law, it can help give a probate judge insight into your intentions, if one becomes involved, and may guide in the distribution of assets, especially if the will is invalidated for some reason.
Guardianship Designations
Many people fail to consider the fate of their minor children if they should die suddenly. That’s why it’s crucial to select a potential guardian. Ensure that the individual or couple you choose shares your beliefs about child rearing and is financially stable. Ideally, they already have a close relationship with your children and are willing to raise your children on your behalf. Specifying a backup is also prudent. If you fail to designate a guardian, you leave that decision to the courts.
Most people prefer not thinking about death, but if you care about the well-being of your loved ones, you must consider that someday you, too, will pass. Creating an estate plan ensures that your wishes are followed if you’re incapacitated or die.
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