Unless you still have one of those Magic 8-Balls® from when you were a kid, you probably don’t know for sure what the future will bring. That’s why it’s crucial that you begin preparing now for whatever life has in store for you.
To create a plan that will protect the people you care about and the life you’ve worked so hard for, you need to consider many factors. Avoid common mistakes by following these seven guidelines:
1. Create a will.
One of the biggest mistakes you can make is not having a will in place. No matter your age, income or marital/parental status, you should have a plan in place that dictates what you want to happen with the things and people you treasure. However, if you — like the majority of Americans — do not have a will, the state where you live decides what happens with your estate when you die. Your estate includes all your property and assets.
In most states, if you die without a will but are married with children, your estate is divided between them. Many family situations are not that simple, however, and the state will not always take personal issues into consideration when ruling how to divide your estate.
Keep in mind that if you do not have a will, the state also decides guardianship of any children younger than 18 years old.
2. Consider emergencies and end-of-life plans.
Estate planning is not just about what will happen to your assets after you die. You also need to plan for what will happen if you become ill or mentally incompetent and are unable to make decisions for yourself.
To appoint someone who can make health care decisions for you when you are incapacitated, you need to complete a health care power of attorney document. You will also want to create a living will, a document in which you outline directions about the provision, withholding or withdrawal of life-sustaining treatments. Together these documents are often called “advance directives."
To appoint someone to look after your property while you are incapacitated, you need to complete a durable power of attorney document. The person you appoint can manage any financial assets you have, in addition to paying bills and filing taxes. Keep in mind that there are state-specific laws that govern all of these documents.
3. Account for everything you care about.
You want to provide a secure future for the people you care about and the things you treasure. In addition to including spouses, children, other family and friends in your plan, don’t forget to plan for the future of your furry friends.
If you have a pet, you may want to consider establishing a “pet trust,” which sets aside money to care for your pet after you pass away. You can also include provisions in your will that outline who will care for your pet when you’re gone.
Estate plans protect not only the people you care about, but also the things you treasure, such as priceless family heirlooms, collectibles or other keepsakes. When taking inventory of your assets, remember the less-tangible ones as well, such as your digital assets. You will want to give someone access to the photos and files on your digital devices. Include passwords and usernames for your online accounts. Facebook® even has a feature now that allows you to choose a “legacy contact,” a person who can control your account after you pass away.
4. Be smart when choosing a person to execute your plans.
The executor of your estate is responsible for carrying out your wishes, as well as locating, managing and distributing your estate’s assets. It’s an incredibly time-consuming role, as the process can take anywhere from months to years.
Many people choose a family member for this role, while others choose a professional with financial or legal expertise.Whomever you choose, it should be someone who is responsible, organized and trustworthy. A financial background is helpful, but an executor can always hire professional help if he or she feels unsure about anything.
You should also choose someone who can communicate well with your family members and other beneficiaries. Relaying decisions about who gets what can cause tensions to run high, so you want someone who can stay calm and collected.
5. Rely on professionals.
If you were building a house, would you be able to do everything yourself? Perhaps if you have a background in construction or you are a contractor, you might be able to do most of it without help, but otherwise you would enlist the help of trained professionals.
Creating an estate plan is the same way — you are building a future for your loved ones and want to make sure that future is a strong one. To do that, you need to rely on the experts.
- An estate planning attorney will help you consider all the various pieces of your legacy and the legal documents you need to have in place.
- A financial advisor can help make sure you are making smart decisions with your money today so that you can reach your future goals.
- An accountant or tax attorney can make sure that you are considering all possible tax laws when structuring your estate plans.
6. Store your plans in a safe place.
Once you have your plans in place, organize all your documents and keep them together. Original documents should be stored in a protected place that is accessible to your estate’s executor.
One of the best options is a fireproof, waterproof safe that you store at your house. Another option is a safe-deposit box, although you will want to make sure you have the documentation required by your state for your executor to gain access to the box.
Wherever you choose to store your documents, give signed copies to your attorney in case the original is lost or destroyed. Also let the attorney and your executor know where your original is stored.
7. Keep your plans up to date.
Wills and other estate planning documents are not things that you create once and then tuck away for the next 40 years. As your life changes, so should your will. Events such as getting married, getting divorced, moving states, having children and retiring all may require an update to your plans.
You should also regularly review your plans to ensure that you are still comfortable with the people you have named as beneficiaries or as agents (the people who will execute your last wishes). This includes reviewing not only your will and advance directives, but also your beneficiary designation forms for investments such as life insurance policies, retirement plans and bank accounts.
