If you were born between 1946 and 1955, you are considered to be a “Baby Boomer.”
If you are a Baby Boomer do not already have an estate plan established, you need one for your own sake and for your family’s.
So, what is an estate plan and why is it important?
In this article, we are going to discuss the basic components of a good estate plan, and why it is important for you and your family to have one.
Estate Plan Fundamentals
Estate planning is the process (and paperwork) of preparing your estate (no matter how big or small) for when you die or otherwise become incapacitated. There are several different aspects of comprehensive estate planning and what you put in yours will be dependent on your needs, assets, and vision.
The ultimate goal of estate planning is to keep courts out of your assets and personal planning and to ensure that your family knows your wishes in any eventuality. If you do not set up an estate plan, it is very likely that a court will be the one who chooses how your assets are divided and who will take care of your health and financial decisions should you become incapacitated.
Let’s look at each part of a comprehensive estate plan more closely.
Last Will & Testament
A will is a legal document that says how your property will be distributed at the time of your death. It is revocable and can be amended at any point while you are still alive. If you have minor children, you will name their guardian in your will. Here is more information on the components of a last will and testament.
A trust is used for both while you are alive (if you become incapacitated) and/or after death. The effect of a trust is keeping a court out of intervening to manage or distribute your estate. There are also significant tax planning purposes for establishing a trust for your assets. If you become incapacitated, whomever you name in your living trust will become your trustee and manage your estate. The only parts of your estate covered in your living trust are the ones you put into the living trust. To learn more about a trust, you can see our article “6 Reasons to Establish a Trust as Part of Your Estate”.
Health Care Directives
Health care directives will typically include a health care declaration (living will) and a power of attorney for health care (POA). These documents allow you to choose someone to make your health care decisions for you if you are unable to. You can state when you want them to start and end and the conditions that should be met before granting someone else authority to make decisions on your behalf.
Financial Power of Attorney
A financial power of attorney is similar to the health care power of attorney. You can choose someone to make your financial decisions, instead of or in addition to healthcare decisions, on your behalf if you are unable to. You may also choose the same or an altogether different person than you did for your health care power of attorney to act on your behalf.
Beneficiaries for Your Bank and Other Accounts
Naming beneficiaries for bank accounts and retirement plans ensure your account are automatically “payable on death” to your beneficiary and allows the funds to skip the probate process. Likewise, in almost all states, you can register your stocks, bonds, or brokerage accounts to transfer to your beneficiary upon your death.
Plan for End of Life and End of Life Events (Funeral)
Make sure your family and loved ones know what your end of life wishes are regarding organ and body donation. Also, make it clear whether you would like to be buried or cremated.
Instead of doing a funeral prepayment plan, consider setting up a payable on death account at your bank and deposit funds into it. The account will pay for your funeral and any other related costs.
Why Estate Planning is Important
An estate plan is important for anyone at any stage of their life. Estate planning will help your family members and loved ones before and after you pass. If set up well, your estate plan will also ensure more of your wealth gets to people that you love, and less is taken away in probate, and other needlessly expensive and challenging court/tax processes.
Remember, even if you are not a Baby Boomer, it is important to think about estate planning too!