Creating an Estate Plan
We’ve talked about how to organize your finances, your home and even your contacts – now it’s time to dig into the actual pieces of your estate plan: a will, Power of Attorney and trusts. We are not attorneys and nothing here should be considered legal advice; please work with a qualified estate planning attorney when it’s time to create your estate plan.
While paperwork isn’t anyone’s idea of a good time, it’s important to address these elements – no matter your age. As the title of our guidebook for this series implies (see below), no one is guaranteed a tomorrow.
That sentiment hit all too close to home for me when two relatives suddenly passed away at relatively young ages. It reminds me why I’m trying to organize my life in the first place: to ensure my family and loved ones are taken care of when I’m no longer here.
As I went through this section of the organization process, I realized that we had some provisions in our estate plan that needed to be taken out – a special trust for a dependent that need to be removed. Had I not taken the time to organize and review our estate plan, that money would have ended up in the wrong place.
This is all to say that there’s no time like the present. Get started on organizing your life now, instead of when you’re older and may not realize your faculties are failing (or before it’s too late). You don’t want you (or your family members) to be left scrambling to get everything sorted out.
And, of course, for an even deeper look at the organization process, I suggest you pick up a copy of “In Case You Get Hit by a Bus: How to Organize Your Life Now for When You’re Not Around Later,” by Abby Schneiderman and Adam Seifer (founders of Everplans*) with Gene Newman.
Designate a Power of Attorney
A Power of Attorney (POA) is a person you’ve appointed to speak for and make decisions on your behalf in case you are no longer able to do so for yourself (like if you’re sick, traveling or deemed incompetent to make your own decisions). Your POA’s responsibilities can include managing your:
- Banking and investments
- Real estate
As you work with an attorney to designate your POA, you can choose to expand or limit the person’s abilities as you see fit. To be clear, your POA’s powers expire in the event of your death – they can only make decisions on your behalf while you are alive (another reason to make sure your will is all in order).
3 Types of Powers of Attorney
There are actually several different types of POAs, so you have options depending on your specific needs.
- Durable Power of Attorney
This is the most common form. Once you sign on the dotted line, your POA is in effect. As long as you haven’t been deemed mentally incompetent, you can still make changes to this document at any time. Typically, people name someone like a spouse or child to be a durable POA, but it is not limited to relatives, you can also name a trusted friend or a professional fiduciary.
- Non-Durable Power of Attorney
This type of POA is used for more specific occurrences, like if you’re out of the country and need someone to file your tax return for you. If you are declared mentally incompetent, the document is no longer considered valid.
- Springing Power of Attorney
This option is similar to the Durable POA, but it only goes into effect if you’re seriously ill, injured or incompetent. It “springs” into actions when needed, but not before or after.
How to Choose your POA
Your Power of Attorney acts as “you” when you can’t – and that’s no small task. How do you choose the right person?
When deciding who you’d like to act as your Power of Attorney, ask yourself these questions:
- Is this person good with money?
- Do they work well with others?
- Are they responsible?
You’ll also want to make sure that whoever you choose is up for the task – working as a Power of Attorney is no small ask, and can be quite time-consuming.
Create a Will
Next up: it’s time to create a will. While a POA goes into effect while you’re still kicking, a will really only matters once you're dead.
A will is a document that outlines what you’d like done with your assets and money after you’re gone. It also allows you to designate someone to take care of your children or other dependents in your absence. A will can be as simple or as complicated as you’d like – it’s up to you.
What does a will cover?
There are some rules surrounding wills, like what you can include and what you can’t. Some of the things a will can include are:
- “Intangible personal property” (stocks, businesses you own, copyrights, etc.)
- “Unproductive property” (cars, artwork, jewelry, etc.)
Things you can’t include in a will:
- Co-owned property
- Anything that already has a designated beneficiary
- Securities willed to someone else
- Digital assets
Digital assets include non-physical, primarily online assets, such as movies, music, apps, social media accounts, ebooks, emails and texts. While you may want to bequeath some of these items to a loved one in your will, it’s actually a bit complicated to do so.
The problem lies in the companies that provide these assets – in most cases, laws forbid them from disclosing digital assets to third parties. We recommend working directly with an attorney to figure out how to leave behind these items through your will.
This one is a toughie – choosing someone to raise your children (besides yourself) isn’t really a happy thought, but it’s necessary to ensure your children are well cared for.
If you’re married, your guardian of choice will likely be your spouse. If you're divorced, it will likely be your ex-spouse.
Which person will make the transition easiest for the kids? Who do you trust most to ensure their health and happiness? Consider their personal values, religious beliefs, lifestyle and location – do those line up with your wishes and what would be best for your kids?
Spend time really thinking through the answers to these questions, while also facilitating open conversations with the would-be guardian.
Your executor is the person who will turn your will into reality – they “execute” your wishes. Your executor is held legally responsible for making sure your will is carried out accurately and to the best of their ability.
When choosing an executor, it’s wise to think of someone who understands finances, knows how and when to ask for help, and is patient. They’re the ones answering all the questions for you – an unenviable position for most. Who do you think would be up for the challenge?
How to create a will
For simple, straightforward wills, you can actually use online, DIY legal services. This is also a good option if you need to get something in place as soon as possible – it may not be perfect, but it’s better than nothing.
When you’re ready to create your fully-detailed and complex will, it’s time to turn to an attorney. They can help you ensure all your will’s details are exactly to your liking and squared up with any legal guidelines you need to follow.
Once you have your will ready to go, it’s best to keep it in a safe place, like in a locked safe at home or even with your attorney or executor.
Set Up Your Trusts
A trust can serve several purposes, but at the most basic level, it serves as a barrier between your assets and taxes or lawsuits.
You might want a trust to avoid probate court, which happens when a will needs to be validated – trusts bypass that process entirely and ensure your assets go straight to your beneficiaries.
A trust can also help you qualify for Medicaid, in that the assets are owned and controlled by a third party rather than yourself.
You can also use a trust to set parameters around assets. For example, you might want to leave a significant amount of money to your grandchild, but only if it will be used for educational purposes.
Living vs. testamentary
There are two main types of trusts: living and testamentary.
A living trust becomes effective as soon as you create it, and it’s usually the most common type. Living trusts are also private – only you and the trustee need to know the terms.
Testamentary trusts exist as a part of a will and only become effective after your death. These are usually used to control exactly how or when a beneficiary receives the money, like if you want your child to reach adulthood or graduate college before they get the payout.
Revocable vs. irrevocable
Beyond choosing a type of trust, you’ll also need to know whether it’s revocable or irrevocable. Don’t let the big word fool you – it’s not that complex.
A revocable trust is one in which you retain ownership, and can enact changes at any time. Once you pass, the trust becomes irrevocable, meaning it can no longer be changed. You can also set your trust as irrevocable from the get-go to avoid tax penalties, but once it’s done it can’t be undone.
How to create a trust
Although there are online options for creating trusts, we recommend you work directly with the professionals for this type of estate planning.
A financial planner can work with you and your estate planning attorney to help ensure your trust is set up according to your wishes. However, the legal questions and ramifications are best left to your attorney.
When it comes to estate planning, sooner is always better than late (or never). Although many of these documents won’t go into effect until after your passing, it’s important to get them in order now – after all, no one knows just how long they have left.
Grow with Gasber
Need help in your journey to organize your life and finances? Gasber can help – click here to schedule your complimentary “Get Acquainted” meeting today