Most people have been told that they need an estate plan, that it’s a smart thing to have.
But what exactly is estate planning?
Why is it important to have an estate plan?
Those are great questions, Dear Reader. And I could talk about them for hours… But not in this post. In this post, I want to give you the short-and-sweet answers.
How Do You Define Estate Planning?
Estate planning is an immensely broad topic.
It includes everything from probate avoidance to asset protection, from tax planning to insurance policies, and from family law to business formation.
But estate planning can be boiled down to a simple definition:
An estate plan ensures that the right people are able to care for your SELF in the event you become incapacitated and that the right people are able to get your STUFF in the event of your death.
That’s it.
An estate plan is concerned with answering two main questions: (1) Who do you want to make decisions for you if you can’t make them for yourself? and (2) Who do you want to get your assets when you die?
Those questions might be easy for you to answer. They’re not meant to be hard.
But without an estate plan, your answers to those questions might not be enforced — your wishes might not be followed.
People you don’t trust could end up being in charge of your finances. People you don’t like could end up getting your estate. You family could be left in a mess, unsure of how to settle your affairs…
Are those things you’re willing to risk?
There are a hundred reasons why having an estate plan is important.
So the next question is: What goes into an estate plan?
There are three main types of estate planning “mechanisms”: formal documents prepared by an attorney, informal documents prepared by you, and beneficiary designations made by contract.
1. Formal documents
By “formal” documents, I mean documents that have legal effect.
For example, you have most likely heard of at least two formal estate planning documents: a Last Will and Testament and a Living Trust.
Both a Will and a Trust can say what happens to your STUFF after you die.
And even though there are some major differences between Wills and Trusts, both can be legally enforced if properly executed — though it’s important to remember that Wills are subject to probate.
Other formal estate planning documents can give someone the legal authority to take care of your SELF. These documents include:
Durable Power of Attorney - allows you to authorize someone who can make medical and/or financial decisions for you if you are unable to do so.
Advance Directive/Living Will - allows you to say whether you want to stay on life support. It’s important to know, however, that a Living Will is not a Last Will and Testament.
Nomination of Guardian - allows you to state your preference for who you would want to serve as your court-appointed guardian, if one ever becomes necessary.
There are myriad other estate planning documents out there.
Estate planning is not a one-size-fits-all proposition, and what works best for someone else may not work best for you.
But if you want to make sure your wishes are honored, you should have some type of formal document(s) in your estate plan.
2. Informal planning
This is possibly the most overlooked, yet also one of the most important, aspects of estate planning.
When someone dies, there is a LOT of stuff that needs to be done. Think about it. Does your family know everything they will need to manage your estate?
Do they know where your assets or title documents are located?
Do they know what insurance policies you have?
Do they have information about your pension or retirement accounts?
Do they know where the key to your safe deposit box is located?
Do they have your computer logon information?
Do they know what digital assets should be deleted or preserved?
Do they know what subscriptions and services need to be canceled?
Do they have contact information for your financial or business advisors?
Even simple estates require a lot of work to settle.
However, you can make the job a lot easier by organizing the information your family will need to manage your affairs after you die.
In addition to the formal documents prepared by an attorney, I recommend preparing an estate planning letter of instruction.
This document — it doesn’t have to be in "letter” form — should walk your family or other representatives step-by-step through the process of settling your estate.
Imagine that you could stand over the shoulders of your representatives and tell them exactly what needs to be done. Think about how much easier that can make things on your loved ones!
You should also consider having an estate planning “fire drill”.
Providing all this information can greatly reduce the stress placed on your loved ones (who are already mourning your loss) by having to manage your estate.
It is one of the greatest gifts you can leave your family.
3. Beneficiary designations
Many financial accounts allow you to name someone to automatically receive the asset after you die.
This person is often referred to as the pay-on-death (or POD”) beneficiary, since he or she benefits from the account after your death.
Bank accounts, insurance policies, 401(k) plans, IRAs, pension plans, and even real estate (in some states) can often be passed to a beneficiary by signing a contract to that effect with the asset holder.
And as an added bonus, assets with valid beneficiary designations can avoid probate.
You might not think of naming an insurance beneficiary as being an estate planning decision, but it is.
Because it determines what happens to your STUFF after your death.
But be careful with this type of estate planning technique. There are some serious risks with using POD beneficiary designations.
Get Started on Your Estate Plan!
As you can see, estate planning involves a lot of options and a lot of thought. Whatever your wishes, just remember: A properly designed estate plan should take care of your SELF and your STUFF.
To talk with a qualified professional about creating or updating your estate plan, contact the experienced Oklahoma City estate planning attorneys at Postic & Bates for a free, no-obligation consultation.
Before you go, click the button below for a FREE copy of our popular Estate Planning Guide, containing over 65 pages of crucial estate planning insights and information:
David M. Postic is an attorney at Postic & Bates, P.C. His practice focuses on estate planning, probate, real estate, trust administration, business planning, and adoption.
You can email David through our Contact Us page or by calling our office at (405) 691-5080.
[As with all our blog posts and other publications and resources, the contents of this article do not constitute legal advice and are subject to our site-wide disclaimer.]
