Planning for your own death isn’t a pleasant exercise, but it’s too important to ignore. That’s especially true if you have children or other financial dependents. Estate planning is a critical component of any financial plan because it helps you protect those you love after you pass away.
An estate plan provides formal, written instructions to your loved ones on how to manage your assets after your death. It may provide financial support to your beneficiaries and loved ones. It also may direct your heirs on how to split up your assets. In some cases, an estate plan helps you protect your assets should you become incapacitated because of cognitive disorders in the final years of your life.
Even if you already have an estate plan, you may have overlooked important items. Below are a few items that people often fail to address in their estate plans. Do these gaps exist in your estate plan? If so, now may be the time to take action.
You don’t have a will.
A will is one of the most powerful and simple estate planning tools available. Despite its effectiveness, many Americans don’t have one. According to a recent study, nearly 60 percent of Americans haven’t created a will.1
Your will provides specific, written instructions to your heirs on how your assets should be divided and distributed. You designate an executor, who oversees the finalization of your estate and the distribution of your assets. You can also use your will to specify who should care for your minor children after you pass away. Wills are powerful tools because they reduce conflict and confusion in the months after your passing.
If you pass away without a will, your estate is considered intestate. When your estate is intestate, the local probate court decides all matters that otherwise would have been dictated in the will. The court may decide who receives your assets and who cares for your children. You can avoid this risk by working with an estate planning professional to create a will.
You have the wrong beneficiaries on your insurance and qualified accounts.
Do you own life insurance, annuities, 401(k) plans or IRAs? These accounts use what’s known as a beneficiary designation. This means they aren’t controlled by your will. Instead, you designate a beneficiary on each account. When you pass away, the beneficiary fills out paperwork and then receives the death benefit directly from the financial institution.
It’s important to check your beneficiary designations on a regular basis. A beneficiary designation is usually ironclad. If you have the wrong person, such as a former spouse, listed as a beneficiary, they will most likely receive those funds after you pass away. Take time each year to review your accounts and update your beneficiaries.
You don’t have a strategy for incapacitation.
Estate planning isn’t just for what happens after you pass away. You can also use your estate plan to protect yourself and your estate in the final weeks or months before your death, especially if you become incapacitated because of health issues.
Incapacitation is a state in which you’re unable to make or communicate decisions about your health care or financial issues. It’s usually caused by cognitive disorders such as Alzheimer’s, dementia, Parkinson’s and more. If you become incapacitated, you may have to rely on loved ones and doctors to make decisions on your behalf.
You can create planning documents like a living will or power of attorney to protect yourself. A living will provides health care instructions to your doctors and specifically addresses end-of-life treatment. A power of attorney designates a trusted individual as your financial caretaker should you become incapacitated. That individual pays your bills, makes investment decisions and generally controls your finances if you’re unable to do so.
These documents and others can be used to minimize risk during incapacitation. For instance, without a power of attorney, your finances could be handed to someone who doesn’t have your best interests at heart. Or your financial matters could cause conflict and confusion among your loved ones. Estate planning documents reduce those risks.
Ready to address the gaps in your estate plan? Let’s talk about it. Contact us today at J. Harris Financial. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
17745 - 2018/6/19