Most people have been told that they need an estate plan, but what exactly IS estate planning? What does it mean to have an estate plan, and why is it important to have one? Although estate planning is a very broad subject, it can be boiled down to this: An estate plan helps ensure that the proper people can take care of your SELF in the event of your incapacity and that the proper people get your STUFF in the event of your death. An estate plan includes several key aspects:
1. Formal documents
You have most likely heard of two very common estate-planning documents: a Last Will and Testament and a Living Trust. These documents say what happens to your STUFF after you die. Importantly, a Will is still subject to probate after your death; however, a properly funded Trust can avoid probate.
(Read our blog post explaining Probate In a Nutshell.)
Other estate-planning documents deal with taking care of your SELF. For instance, a Durable Power of Attorney allows you to appoint someone to make financial and/or medical decisions for you in the event you are unable to do so. An Advance Directive for Health Care (also known as a Living Will) allows you to state your wishes regarding end-of-life care, e.g., whether you want a feeding tube or other life-sustaining treatment.
There are myriad other estate-planning documents that may be appropriate in your particular situation. Estate planning is not a one-size-fits-all proposition, and you should consult with a qualified estate-planning attorney to determine what documents are best for you.
2. Beneficiary designations
Bank accounts, insurance policies, 401(k) plans, IRAs, pension plans, and many other financial assets allow you name someone to receive the asset after you die. This person is called a beneficiary because they benefit from the asset after your death. You may not think about it, but these designations are part of your estate plan.
(There are a number of advantages to using insurance in your estate plan.)
One of the great things about beneficiary designations is that, in most circumstances, they allow assets to transfer outside the probate process. As a result, we recommend reviewing your beneficiary designations regularly to make sure (1) you have a beneficiary named and (2) you still want the named individual to receive that particular asset after your death.
3. Informal planning
The most overlooked aspect of estate planning is possibly also the most important: informal planning. When you die, do your kids know where your assets are located? Do they know how to contact your financial or business advisors? Do they know your Internet passwords? Do they know where your safe deposit box key is located? Do they know which subscriptions and services need to be canceled? Do they even know what estate-planning documents you have?
(Has your family had an estate-planning "Fire Drill"?)
In addition to the formal documents prepared by an attorney, we recommend preparing a "Letter of Instruction" to your family and/or representatives detailing the more nuanced aspects of managing your estate. Approach the letter as though you could stand over your representative's shoulder and tell them everything that needs to be done in order to close your estate. Creating this document can greatly reduce the stress placed on your loved ones by having to manage your estate after your death.
How should I start my estate plan?
Although this post has merely covered the highlights, you can surely tell that there are many sides to estate planning. It is not all formal documents filled with legalese. Whatever your estate plan includes, remember: A properly designed estate plan should take care of your STUFF and your SELF.
Whether you want to create an estate plan for the first time, or you already have an estate plan and want to have it reviewed, contact the Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation appointment. As a bonus, click below to download our FREE Estate Planning Guide.
[As with all our posts, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]