Many people believe that having an estate plan simply means drafting a will or a trust. However, there is much more to include in your estate planning to make certain all of your assets are transferred seamlessly to your heirs upon your death. A successful estate plan also includes provisions allowing your family members to access or control your assets should you become unable to do so yourself.
Here is a list of items every estate plan should include:
Does your estate plan measure up? Let's examine each item on this checklist to make sure you haven't left any decisions to chance.
A Will should be one of the main components of every estate plan, even if you don't have substantial assets.
Wills ensure property is distributed according to an individual's wishes – you should write your own as the Government’s standard one (under intestacy rules) is generally not suitable for our needs.
However, is simply having a will enough? - the wording of the document is critically important.
A will should be written in a manner that is consistent with the way you've bequeathed the assets that pass outside of the will. For example, if you've already named your spouse as a beneficiary on a pension or insurance policy (assets that typically pass outside of a will to a named beneficiary), you don't want to bequeath the same asset to another person in the will because it could lead to a will contest. Not to mention that both individuals could become bitter toward each other (and you) during a legal battle.
A will can take a long time to go through probate (the court process for giving permission for your assets to be given out to heirs) and is public so anyone could check what you gave and who to.
Most of us have not prepared a list of assets and liabilities so our Executor/s would need to know what to claim for under probate. Writing a will can remind us to put a schedule in place, just in case. And not leave valuable assets in financial institutes.
A will is simple with its instructions. We write who we give our assets to, and if children are minors, at what age but we cannot write how. This is a more complex procedure.
You can write a testimonial (will) trust and have your Executor/s place your assets into a trust when you die however, you are giving them the control of instructions.
For complete control of your whole wealth, and to ensure immediate access is given to loved ones when needed, a living (inter vivos) Trust which allows you to place assets now and name beneficiaries. Should something happen to you (settlor) the beneficiaries can instantly claim as assets have already been placed for them to access.
You may have minor children and hold a lot of wealth… how old should they be before they become wealthy? A trust can help you control the capital and income for beneficiaries. It can act as a pre-nuptial for your future children-in-laws by restricting access to non-blood relatives.
Many countries charge death or inheritance taxes and certain trusts can mitigate or remove these.
Trusts are private! No-one, except who the settlor/s (person/people setting up the trust) chooses to know, would have knowledge of the trust.
Not everything can go into a trust (for example your bank account) so a will is needed but you can have the beneficiary to your will be the trust. Everything you own, when you die, would then go into the trust.
You have already placed instructions for the trust so no-one would mis-understand your requirements.
Enduring Power Of Attorney
It's important to draft an enduring power of attorney (EPOA) so an agent or a person you assign will act on your behalf when you are unable to do so yourself. Absent a power of attorney, a court may be left to decide what happens to your assets if you are found to be mentally incompetent, and the court's decision may not be what you wanted.
This document can give your agent the power to transact real estate, enter into financial transactions and make other legal decisions as if he or she were you. This type of POA is revocable by the principal at a time of his or her choosing, typically a time when the principal is deemed to be physically able, or mentally competent, or upon death.
In many families, it makes sense for spouses to set up reciprocal powers of attorney. However, in some cases it might make more sense to have another family member, friend or trusted advisor who is more financially savvy act as the agent. It all depends on what you own and what you would need to continue.
As noted earlier, a number of your possessions can pass to your heirs without being dictated in the will (e.g. a pension plan). This is why it is important to maintain a beneficiary -- and a contingent beneficiary -- on such an account. Insurance plans should contain a beneficiary and a contingent beneficiary as well because they too typically pass outside of a will.
If you don't name a beneficiary, or if the beneficiary is deceased or unable to serve, a court could be left to decide the fate of your funds. And frankly, a judge who is unaware of your situation, beliefs or intent is unlikely to make the same decision you would have made.
Healthcare Power of Attorney
A healthcare power of attorney (POA) designates another individual (typically a spouse or family member) to make important healthcare decisions on your behalf in the event of incapacity.
If you are considering executing such a document, you should pick someone you trust, who shares your views and who would likely recommend a course of action you would agree with. After all, this person could literally have your life in his or her hands.
Finally, a backup agent should also be identified, in case your initial pick is unavailable or unable to act at the time needed.
If you have minor children or are considering having kids, picking a guardian is incredibly important and sometimes overlooked. Make sure the individual or couple you choose shares your views, is financially sound and is genuinely willing to raise children. As with all designations, a backup or contingent guardian should be named as well.
Absent these designations, a court could rule that your children live with a family member you wouldn't have selected. And in extreme cases, the court could mandate that your children become wards of the state.
The Bottom Line
There is more to estate planning than deciding how to divvy up your assets when you die. It's also about making certain your family members and other beneficiaries are provided for and have access to your assets upon your temporary or permanent incapacity.
A will is a great place to start, but it's only the beginning.
We’re here to help and answer any question you might have. We look forward to hearing from you.