This article is intended to provide general information and should not be considered legal, tax or financial advice. It's always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation.
There are basic elements that are essential to financial life as an adult. Examples include a budget, a bank account, and proper insurance. An estate plan is another essential element and it shouldn't be pushed off into your 50s, 60s or later, no matter your financial situation. It's easy to procrastinate taking steps for estate planning like preparing a will. In fact, a recent ABCNews poll found that only about 50 percent of Americans have created a will and significantly fewer have created the supporting estate documents like a living will or a power of attorney.
Preparing now for the end of your life or for illness may not sound like fun but it is necessary. Having a plan for the future can help bring you peace and even put you on the road to stronger financial security. It can also help those you care most about. We've all heard cautionary tales about relatives or friends who did not have a will, and family members who were left with difficult but avoidable situations.
Are you among those Americans who have not taken any steps towards estate planning? If so, let me share why it might be a good time to start.
Estate planning can be about so much more than planning for death. It can be a holistic process that can set your finances on a much more successful path for the rest of your life. Proper planning is about establishing and sticking to good financial behavior, particularly if put in motion early in life. Think about it this way. Estate planning doesn't have to be about giving away what you have; it can help you set goals concerning what you want financially and personally in life to ensure you have something meaningful to leave behind if you choose to do so.
That's why the estate planning process can be an opportunity to put your finances back on track. This is not meant to be a "set it and forget it" process. When your life changes in a significant way, that's a signal to go back and review both your financial and estate plans to make sure you're still on course. Estate and financial planning should be connected.
So, how do you start an estate plan? Estate planning has a lot to do with carefully drawn documents, but it's the planning behind them that really counts. I would encourage you to work with a qualified financial, estate and/or tax professional in your home state at the earliest opportunity to make sure your plans fit your needs and the needs of your loved ones. Here's a bit more detail on each.
A will, also called a testament, is the starting point. Wills are generally seen as the umbrella document that drives the rest of an individual's estate process. A will generally accomplishes the following:
• It details how you want to leave your property to specific people or institutions after you die.
• If you have minor children, it allows you to name a guardian to care for them after you die or become incapacitated. It also indicates who will manage your kids' assets, including what you leave them.
• It lets you name your executor, the trusted person who will carry out all your wishes in the will.
If you die without a valid will, your state's court system may get involved in distributing your assets depending on intestacy laws on the books.
A living will - also known as an advance directive - allows you to define how you want to be medically treated under specific situations, including irreversible injury or terminal illness. Depending on your state laws, living wills allow you to express your exact wishes about feeding, breathing assistance and other life-sustaining procedures in addition to how you want them carried out at certain decision points in your care. A living will may also provide information on pain or infection medications you either want or don't want administered as well as specific instructions about your remains, including release to your family or donation for medical research.
Powers of attorney are legal documents that allow you to name a specific person to take care of your money or healthcare wishes if you are incapacitated. It is wise to seek professional counsel from a qualified trusts and estates attorney in writing these documents. The person you designate as healthcare power of attorney will be speaking with doctors and executing your wishes on various forms of treatment; your financial power of attorney will be in charge of paying your bills and depending on the range of responsibilities you outline for that person, handling your investment and business affairs. Both are extremely important jobs that should be carried out by people you trust, and that's why they need to be people in the know. Make their preparation part of your estate planning so they know how to step in and carry out the assignments you've given them efficiently.
Bottom line: It is normal to feel unprepared or intimidated when confronted by the questions of estate planning. You can avoid problems and put your mind at ease by starting early, finding the right expertise and making sure you have the right legal documents in place.
Nathaniel Sillin directs Visa's financial education programs. To follow Practical Money Skills on Twitter: www.twitter.com/PracticalMoney