You're Gonna Die
You need an estate plan
Pardon my bluntness, but it's an indisputable fact: You're going to die. And, perhaps if I am blunt, all you people out there who have yet to face your ultimate demise, even conceptually, will pay attention.
Since we're all going to die – you're not still arguing this point, are you? – it only makes sense that we all take the steps necessary to prepare for it. That means making a will and deciding what will be done with our remains. It also means making sure that if we are incapacitated, we leave someone able to speak on our behalf, both financially and medically. All in all it means creating an estate plan.
Many people see estate planning as a rich-folks activity. With all that money to divide and all those squabbling heirs to quiet, a plan is in order. Yes, rich people do pay a lot of attention to how their affairs will be handled when they can't do the bossing around any more. And if you want to take a page from their book, you might want to look at what could happen if you don't pay attention.
Follow me for a minute down Worst-case Avenue. You and your hubby were in a car accident, and now you're in a coma. You haven't executed a financial power of attorney, so no one can touch the money in your bank account. Even as your sick leave or disability income accumulates by automatic deposit, your life insurance lapses (no one can write the cheque), your mortgage renewal goes un-renewed and your kids' tuition remains unpaid.
Assuming you make a full recovery from your accident, at best you'll find your life in a shambles. Shuffle off this mortal coil and not only will your family be devastated emotionally and financially, your government will step in to decide who gets what. Not a pretty picture, is it? And all this can be avoided by creating an estate plan.
An estate plan consists of a will, which says how you want your assets to be distributed, along with powers of attorney (POA). There are two types of POAs and they both have to be enduring – a legal term meaning they have to outlast you – to be useful. A financial POA identifies who will manage your money and under what circumstances while a medical POA identifies who will make your health-care decisions if you can't make them for yourself.
If you have kids, your estate plan should also include a guardianship appointment so your kids end up being raised by someone you like. You might also include a trust as part of your estate plan. A trust describes a relationship that exists when one person (the trustee) holds title to property on behalf of another (the beneficiary). A living trust is created when the settlor (the person giving the money or stuff or whatever) is alive. When a trust is set up through a will it's called a testamentary trust.
Whether you wish to protect a same-sex partner from the prying eyes of family that hasn't been so willing to accept your alternate lifestyle, or you want to save your spendthrift child from his financial demons, a trust can do the trick. And if you're trying to protect a child who may be disabled and financially dependent, a trust is irreplaceable.
Do You Need a Lawyer?
Yes. Yes. Yes. I know there are Will Kits available. I know they are cheap. But ya know what they say: you get what you pay for. Estate planning is one of the last bastions of complicated and opaque language. If you don't have an expert who specializes in legal gobbledygook, you may not get what you want.
Here's an example of what I mean. Let's say you make your own will in which you say, “I want all my money to go to my wife.” What do you mean by money? Do you mean the money in a specific bank account? And what happens if you change banks later on? Or if you change wives in all but the legal sense? The term household contents can also have myriad meanings while “wife” may have only one.
Do your household contents include your very valuable stamp collection? The car in your garage? Your grandmother's diamond ring? If you think that's picky, wait till you see what can go into the naming of a beneficiary.
If you're still hesitating about creating an estate plan because you don't want to spend the money, know that what you save today you'll make up for in taxes and fees later on, and then some. A good estate plan will distribute your assets tax-efficiently, while minimizing fees. It takes some thinking. It can be a little unnerving. But it'll also make it easier on the family you leave behind.
It's a grown-up thing to do, so grow up and do it.