Michael Jackson, Prince, Aretha Franklin…these three amazing and wildly successful musicians did not have a will. How could that be, you ask? Don’t they have agents, lawyers and accountants? Didn’t they know at some point they were going to die? “That’s irresponsible,” you say, but welcome to the real world, where even famous people can’t seem to get their acts together to address this difficult topic head on.
According to a Caring.com survey, only 42 percent of U.S. adults currently have estate planning documents, including a will. Shockingly, for those with children under the age of 18, the figure is even lower, with just 36 percent having an end-of-life plan in place. Of those who have not done any estate planning, 47 percent said, “I just haven’t gotten around to it.” I get it…contemplating one’s death is not exactly high on anybody’s to-do list, but it is important that you overcome the anxieties associated with this emotional topic and take control.
So what happens when you die without a will? Your state of residence determines who should get what. The local Probate Court oversees everything from property, bank and retirement accounts and will divvy up the estate according to a preset formula. Of course, many parents readily acknowledge, some kids are better prepared to manage financial distributions than others, which is why estate planning can be so important.
“If you have assets that you want to go to certain people, you should create a document that specifies who gets what,” says Robert Westley, CPA/PFS member of the American Institute of CPAs Personal Financial Specialist (PFS) Credential Committee. If one of your children is responsible and the other is a spendthrift, careful estate planning “can provide instruction on how, when and on what terms your assets will be distributed.”
Many people erroneously believe that because they don’t have a significant net worth, they do not need to worry about these legal issues. But estate planning is not just about money. Westley notes, that for those with young children, “the will is essential because it names the guardians of minor children and you will want to ensure that you, and not the courts, are naming their guardians.”
If you are ready to finally begin or revisit the planning process and seek the guidance of a qualified estate attorney (yes, you should pay up for a lawyer and not do it yourself), here are the basic documents to consider:
Will: A document that ensures that assets are passed to designated beneficiaries, in accordance with your wishes. In the drafting process, you name an executor, the person or institution that oversees the distribution of your assets. If you have minor children, you need to name a guardian for them.
Letter of Instruction: This may contain appointment of someone who will ensure for the proper disposition of your remains, creepy, but important if you are choosing a method that is contrary to your family’s tradition.
Power of Attorney: Appointment of someone to act as your agent in a variety of circumstances, like withdrawing money from a bank, responding to a tax inquiry or making a trade.
Health Care Proxy: Appointment of someone to make health care decisions on your behalf if you lose the ability to do so
Trusts: Revocable (changeable) or irrevocable (not-changeable) trusts may be useful, depending on family and tax situations. For 2018, the first $11.2 million of an estate is exempt from federal estate taxes. If an estate is above the threshold (or twice that for married couples), you may want to consider a trust.