Five Important Things to Know.
Chances are, if you’re reading this information, you’re probably not spending too much time thinking about end-of-life planning. And while you are probably in your prime, you may have loved ones who will soon face these questions. It’s unhappy to think about, but you might be the one tasked with sorting out their affairs. Knowing the basics of what you might face can help you feel more prepared if that time comes.
What do you need to know? Here are five aspects of end-of-life planning with which everyone with older loved ones should be familiar.
Probate
The first step in implementing an estate planning strategy is to understand the role courts play in the process, and how probate impacts even the smallest of estates. Probate is a term used to describe the process the court uses in settling the deceased’s estate. The time it takes to complete the estate distribution and the associated fees will vary by country, but probate expenses alone can cost an average of about ten percent of the estate’s value and can take years to complete.
The costs, along with the time and headache associated with settling an estate, means any step that will help navigate the probate process–or better still avoid it altogether–is worth exploring.
A Will
A valid Will does not avoid the probate process, but it will make things much easier. A Will serves as a guide to the deceased’s final wishes for the courts and the Executor (the person chosen to act on the deceased’s behalf). When it comes to the courts, anything that speeds up the process of physical asset distribution will minimize fees and make things easier for everyone involved. And you won’t have to fight your cousins for Grandma’s china set. But a Will is only a roadmap: to make a potentially painful process less so, it’s best to make sure all her financial assets and valuable possessions (like a home or land) have beneficiaries named in places additional to the Will.
Beneficiaries of Financial Assets
Financial assets can have beneficiaries named so that the institution holding them knows who to turn the funds over to in the case of an account holder’s death. If an asset has a named beneficiary, it avoids probate. A retirement plan or life insurance policy are the most common instances, since most of these ask the owners to name a beneficiary.
To make things even simpler, you should know that in addition to the aforementioned insurance policy and retirement plan, a lot of everyday assets allow for beneficiaries. You should find out if your financial institute, holding your assets will allow this service.
Family Trust
For assets that don’t carry the capability to name beneficiaries–often larger physical assets like a home or company shares – a Family (Discretionary) Trust may be the solution. Most anything placed in a Family Trust, also called a living trust, will avoid the probate process.
The main reasons for setting up a Family Trust are for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, so can often help with the removal of death or inheritance taxes.
Another chief advantage of Trusts is that you can put conditions on how and when your assets are distributed after you die. If you have minor children and your estate value is high, how do your stop them inheriting in one go for example?
Finally, and probably most importantly, a Family Trust will distribute assets to heirs efficiently without the cost, delay and publicity of probate court.
Power of Attorney
There are two Powers of Attorney (POA) worth exploring to accomplish some basic estate planning objectives. A Financial POA allows a person to choose who will be responsible to handle financial decisions if he or she is physically or mentally unable to do so. If one of your loved ones suffers a serious illness, POA allows access to their accounts to help manage hospital bills and other medical expenses. The second type, a Medical POA, dictates the desires of a person who has become physically incapacitated, so that their medical preferences can still be factored into decision-making.
Depending on where you reside, there will be specific names for each POA, for example in Hong Kong, you would be have an Enduring Power of Attorney for financial control should you become mentally incapacitated.
Be Prepared
Death is a tough topic, and it may seem less than relevant to younger folks, but the reality is that we’ll never know just when this information could come in handy. Of course, the most crucial part of the estate planning process requires no paperwork or expense: discussing your relatives’ wishes. Nothing will make that conversation easy, but a clear understanding of your family’s wishes can help avoid tough conversations when loved ones should be relying on each other to get through a difficult time–not fighting each other over the family heirlooms.
Once you have set your estate plan in place, you simply need to review as and when your situation changes. A Marriage revokes a Will BUT a Divorce does not so be wary about how your situation changes and what you set up prior to the changes. A review every other year would be advisable to keep stock of your initial plans.
