Estate Planning Basics – The Minimum You Need to Ensure Your Wishes Are Carried Out

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Simple Estate PlanningWhen is the last time you updated your will?
After my aunt—who took care of her elderly mother and disabled sister—passed away suddenly at 52, our entire family scrambled to try to find the paperwork and insurance information that specified what happened to her estate. A death in the family is a stressful time, which is compounded when you add in financial uncertainty. It…

After my aunt—who took care of her elderly mother and disabled sister—passed away suddenly at 52, our entire family scrambled to try to find the paperwork and insurance information that specified what happened to her estate. A death in the family is a stressful time, which is compounded when you add in financial uncertainty. It didn’t occur to my aunt that she would need to have her estate set up so young, but you never know what life will bring. Because of this experience, I’ve learned that one of the greatest gifts you can give to your loved ones is a well planned out estate.

Unfortunately, even with my family experience fresh in my mind and the recent birth of my son, finding the time to plan out my estate has not been easy. Day-to-day life always seems to get in the way. But getting the bare bones of your estate set up will take less time and money than you think. Here’s a guide to the bare minimum you need to make sure that your assets and family are taken care of:

1. A Will

I was horrified to learn that if my husband and I were to die intestate while our son was still a minor, the state would decide where he went, despite the fact that we have already discussed our plans with family. We needed to have a will to protect him. We learned that setting up a will was a very quick and easy process once we found a lawyer. We received a recommendation from our financial adviser, but you can also search here for will and probate lawyers in your area.

Writing our will began with a phone call wherein our lawyer determined our estate was valued at less than $5 million (which I assume meant she could use a simpler will template), and who our son’s custodian and our will’s executors would be. After that 15 minute phone call, our lawyer emailed us a pdf of the will that same day to check for typos or other issues. We signed the will in her office two days later, and my husband and I felt much more secure. The entire process took about an hour of our time (including the original phone call) and cost less than $200.

In the future, I hope to rewrite our wills to be more specific about the disbursement of our assets, but for right now, this is enough to protect us if the unthinkable happens.

2. A Living Will

No matter your age, it’s important to put some thought into end of life planning. While few of us like to think of something as unpleasant as death, you need to have a way for your wishes to be carried out, whether they are financial wishes or other wishes related to your end of life.

End of life planning
A living will helps your family understand your wishes.

This issues was brought to mind with the recent story of the nurse who stood by, refusing to give CPR, as an elderly resident in a senior home died. Luckily for the nurse (and the senior home), so far the deceased woman’s family insists that she wouldn’t have wanted efforts made on her behalf. So that means that the nurse isn’t likely to face the financial consequences that might come with a legal action against her.

Even though the elderly woman didn’t have an “official” statement filed somewhere, her family seemed to know her wishes. Does your family know your wishes? And do you know how you want things to play out in your end of life planning.

It didn’t occur to me to ask for a living will in addition to our typical will, but our lawyer included it since it is a common and necessary supplement to your estate planning. Without a living will in place, your wishes could be disregarded should you fall into a coma and need medical intervention to survive. This could potentially have serious consequences for your family if they disagree about what you would want and if you do not have the money for extended medical care.

The lawyer who draws up your will should also be able to create a living will for you.

Your will can provide your survivors with information about how you want your financial assets distributed, as well as instruct them about other matters. You also need to consider other estate planning basics, including:

You also want to make sure that you have adequate life insurance for your family, so that they are able to make up for the lost income after your demise.

It’s never fun to sit down and think about what might happen, or to face the possibility of your own death (or the possibility of your life partner’s death). However, you do need to make those efforts. You and your life partner need to sit down and figure out what you want to have happen.

Make it Official – and Keep your Living Will, Health Care Proxy or POA with Your Important Papers

In many cases, it’s not enough to simply let others know what you want to happen. You need to make it official, with the proper documents and signed statements. This is something that my husband and I need to take as a step.

Part of your planning should include whether you want to be an organ donor or if you want your body to be donated to science. These are difficult topics, and not everyone is comfortable discussing them, let alone making the decision on behalf of someone else.

3. Guardianship of Your Children

If you have minor children, you will need to consider who will take care of them if both parents die or are incapacitated and are unable to take care of the children.

Not only should you let your wishes be known, you should make it “official” through a will and other documentation. We’ve written a few things down, but it’s not exactly the same thing. Part of your decision should include how the children will be cared for, and  how much money you should leave the guardians of your children. Keep in mind Social Security Survivor Benefits for children may provide a monthly payment to your children until age 18 (sometimes later) should you predecease them.

An estate lawyer can help you draw this up in your will or help create a trust that will provide for your children in the event both parents are unable to care for or provide for the children.

So it’s time for us to sit down, have an official talk about end of life (and the possibility that it might come suddenly, at any time, even though we’re still young), and then draw up some documents that make it clear to everyone around us what should happen if we become incapacitated, or if we die.

4. Sufficient Life Insurance

It can be easy to forget how much your life has changed after marriage, children, and a higher paying career. Many of us continue to live with the same bare minimum or no life insurance that we had when we first started our careers. But life insurance is an important part of making certain that your loved ones are taken care of – so you should make sure you have enough.

If you’re intimidated by life insurance, start with the insurance offered through your employer. You HR department should be able to offer you some counseling (or phone numbers where your questions can be answered) as to what options are available to you. Just keep in mind that life insurance through an employer may not be portable, so you may wish to have a separate life insurance policy in the event you change jobs.

It’s also important to remember that stay-at-home parents should also be covered by life insurance. Just because they are not bringing in an income does not mean that they don’t need insurance. That means you will also need to see an insurance professional or search for a policy for yourself if you or your spouse doesn’t work outside the home.

In addition to the life insurance offered to my husband through his workplace, we are also setting up insurance for both of us through our financial adviser.

5. Creating a Financial Continuation Plan – Financial Security For Your Family

Your will, living will, plan of guardianship, and life insurance policies take care of many of the big-picture estate planning needs. But it’s also a good idea to have a financial continuation plan to help the executor of your estate manage their legal obligations while settling your estate.

Everyone should write an “If I Die Letter” which informs the survivors:

  1. Who to contact
  2. Where the money is
  3. What to do with the money (this is knows as “The Continuation Plan”)

This letter should include some or all of the following:

1. Who to contact. This list should include your doctors, lawyers, financial advisors, insurance agents, religious advisor, closest friends and family, business partners, and anyone else who has a personal or legal interest.

2. Where is the money? Now is not the time to hide money from your spouse. It’s a good idea to have a list of  all financial account numbers, contact names, and passwords for each institution. It’s a good idea to give a brief explanation of each account, if necessary. This can have important legal and tax consequences for accounts such as investments, retirement accounts, insurance policies, etc. While you are at it, take steps now to ensure that your survivors can get to the money in the event of your untimely demise.  You may want to use trusts or powers of attorney for this.  Talk to an attorney before taking action to understand your options, and and any legal requirements or limitations.

3. What to do with the money (The “Continuation plan”). This is the most important part of the letter.  This will help your survivors plan for their future without you. This is especially important if you managed most or all of the finances. You want to ensure your family will be taken care of, both now and in the future. Hopefully your estate will have sufficient funds with its current assets, plus any life insurance policy proceeds.

If you do the financial planning, be sure to direct your survivors to a competent financial planner and/or tax professional to help them with this transition, transferring any funds, and any legal or tax consequences they may incur.

6. Will You Leave an Inheritance for Your Children?

A recent article on CNN Money says that American retirees expect to leave an average of $177,000 in inheritance for their heirs. Other than wondering how much millionaires and billionaires are skewing this average (seriously, I don’t know anyone who’s going to wind up with $177,000 from their parents or grandparents), I’m wondering whether or not it’s really such a great idea to plan to leave an inheritance for your posterity.

Why Is There Money for an Inheritance?

leave inheritance for kids
Will you leave money to your children?

Part of the reason that many Americans end up leaving money behind for their posterity has to do with the fact that we are conditioned to save up as much as possible to fund our own retirements. So, if you save up what you can so that you are sure not to outlive your money, it makes sense that there is likely to be some left over for your children and grandchildren.

In fact, you might be relying on money that you think will be left over when your own parents die. According to CNN Money, two-thirds of those in the United States claim that an inheritance will partly fund their own retirements. It seems only natural that you will pass on money to your own heirs over time as well.

For some, though, there is a conscious effort to build up an inheritance for those who come after. Instead of trying to make sure that they have what they need (and then some), and then letting the chips fall where they may when it comes to leaving money for their heirs, there are those that hoard as much as they can so that their beneficiaries end up with as much money as possible.

Re-Thinking the Inheritance

In some case, though, it makes sense to re-think the idea of the inheritance. First of all, you might not want to try to amass a pile of money that you will never enjoy. While my husband and I are good about contributing to our retirement efforts, we don’t get too crazy with it. After all, we want to enjoy some of our money now, in addition to saving for the future. What good is a huge retirement account if you’re too old to enjoy it?

Another reason to re-think the huge inheritance for your heirs is the reality of taxes. A big inheritance can mean that your children and grandchildren lose a lot of value to estate taxes and inheritance taxes—state as well as federal in some cases. Instead of trying to build up that huge stash, some choose to give money now. You can use your gift tax exclusion to give gifts tax-free, reducing the size of your estate and creating a situation in which you can watch your heirs enjoy their inheritance, rather than being insensible of it.

You can also re-arrange your estate plan with the help of vehicles like trusts that can help you smoothly pass your assets while reducing tax liability. This is where a basic estate plan and a will are essential.

A “traditional” inheritance isn’t always the best choice. Think about your situation, your goals, and what you really want to teach your children and grandchildren. Then, make your decisions based on what is likely to be most beneficial in the long run.

The Bottom Line

Getting these three parts of our estate set up was relatively quick, inexpensive, and painless. I know that we are not done in terms of making sure that our son and our families are protected, but we have the bare minimum in place for our estate. Even if you don’t have much time or money, it’s worth it to have that kind of peace of mind.

Your estate planning needs may be more complicated. If so, you may wish to hire a  lawyer that specializes in estate planning. It may also be worth consulting with a tax professional or financial planner to understand potential tax consequences of your estate and investments. Depending on the complexity of your estate, you may want to look into survivorship life insurance policy or a strategy such as placing a life insurance policy inside a trust to help with potential estate taxes or other estate planning needs.

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About Emily Guy Birken

Emily Guy Birken is a freelance writer and mother who loves to share tips on managing the family budget and other personal finance tips. You can find her musings on parenting and life at The SAHMnambulist.

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  1. Miranda says

    No one likes to think of this sort of thing, but it really is a good idea to let your family know what to do when you are gone. Thanks for the well-thought-out piece, and the action plan. I need to get my will done, as well.

  2. Neal Frankle says

    Thanks Miranda. I agree….nobody likes to talk about this but the upside is…once you do handle it, its done. No more worrying about unfinished business.

    One last tip, look into a trust. It may be a better deal than a will.

  3. Brad says

    you really don’t need to pay some lawyer $200 hard-earned bucks to be emailed a boiler-plate pdf will that is obtainable anywhere for free with a little google search……in fact, you can write your own wishes in your own language, sign it front of a notary (for free at your credit union), place it in your own filing cabinet. and you are good to go……

    • Ryan says

      Brad, this is probably OK for simple estates, but I would check with a lawyer before doing this for any estate plan which is more complex or in which you want to specify exactly where your estate goes. If you have more complex needs, including anything involving a trust, a business, children who will need to be taken care of, or property held jointly, then it is probably best to at least speak with a lawyer to determine state and other legal requirements.

      The last thing I would want is to have my family deal with probate, court costs, and waiting, all because I was afraid to spend a little money. Since I am a small business owner and the father of a young child (with another on the way), I am more than willing to spend a little money to ensure my wishes are followed in a timely and cost effective manner, and that my family and children are taken care of after I am gone.

  4. jack foley says

    Yea, just shows you how many people are educated in this area..

    Makign a will is very important and must be done as you say to protect minors..

    • Ryan says

      Jack, this taking care of my daughter is number one in my book. We spent some time with our lawyer going over our will and estate to make sure we would have enough money to care for our children in the event my wife and I were to both die at the same time. We also spoke with our selected guardians to make sure they would be willing to assume the responsibility (on every level, including financially) and made sure we had enough money set aside in our wills to cover the added expense of taking more children into their household. It’s something people don’t want to think about, but it is essential.

  5. Emily Guy Birken says

    @Brad, while I’m a confirmed do-it-yourselfer in many areas of my life, I was personally more comfortable knowing that my boiler plate will came from someone with legal experience. If it weren’t for my son–that is, if I were writing a will that only had to do with the disbursement of my assets, rather than one that also included what would happen to him in the event of my death–I’d be perfectly happy to do what you suggest. As a nervous first-time mama, I feel good about spending the $200 to know that my son is completely taken care of in case the unthinkable happens. I see it as insurance against my own lack of knowledge in this arena.

  6. Krantcents says

    Children is one of the most important reasons to have a will. You want to make sure who will take care of them and make sure the estate is distributed to do so too. One can argue whether a lawyer is necessary, but your wishes are important and should be documented.

    • Ryan says

      Agreed, krantcents. As I mentioned in the earlier comments, this was something my wife and I spent a lot of time talking about. In the end, we wanted our wishes legally documented so our children would be taken care of. We also made sure our estate would have the funds to do so (via our current assets and our life insurance policies).

  7. MyMoneyDesign says

    A will is something I need to do and have been putting off for a long time. I was on the fence about using some service like “Legal Zoom” or going completely legitimate with a lawyer. I think I see which way this forum is leaning towards. Thanks for bringing it up and putting it out there for discussion (as well as reminding me to get it done this year!).

  8. Emily Guy Birken says

    @MyMoneyDesign, just do it! It felt great to know that this particular chore was taken care of and that my son will be provided for. It’s not fun thinking about mortality, but by having a will, I don’t have to. And either way you get your will written, it will be good to have it done.

  9. Brian @ Luke1428 says

    One of the best things my father in-law did before he passed was to create a Word document that provided details about his personal belongings – some of which we didn’t know he had. This was a great supplemental document to have along with his will.

  10. Doug @ The-Military-Guide says

    Good article. I wonder how much of this is a fear that the next generation won’t have the pensions or the 401(k) balances for their own retirements, either.

    Imagine if, instead of waiting decades of adulthood to inherit, your parents were able to help you maximize your 401(k) and IRA contributions while you were in your 20s. Of course many parents can’t tell yet whether they have money to spare for that, and many 20-somethings would be tempted to raid the accounts for a BMW…

    • Ryan Guina says

      Great comment, Doug. Getting young folks off to a great start is much more important than leaving a financial legacy. It’s the same as the adage of giving a man a fish, or teaching him to fish. Instilling good financial habits lasts a lifetime, and helps ensure your children will be OK in the long run.

  11. Bryce @ Save and Conquer says

    We plan to give our son annual gifts once he gets through college, gets a career job, settles down, and shows he can handle money. We have loaded up his 529 so he won’t have any debt if he attends a state university. As far as an inheritance, he will get whatever is left over. Barring an accident, I am positive my wife will outlive me by many years. When we retire in 9 years she will only be 49 years old. We plan to have more than enough money for the both of us, but it needs to realistically last for probably 45 years or more. All analyses show there will likely be more money when she is 100 than there is now, so I am pretty sure our son will get an inheritance.

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