Often times when discussing estate planning with clients, the initial response we get is “I’m not in the uber-wealthy category, why should I worry about an estate plan?” Well, the reality is that estate planning can be beneficial to anyone, regardless if you’re in the same tax bracket as Jeff Bezos, or not.
Here are the 5 basic components of a well-rounded estate plan:
1. Will
Perhaps the most basic and often utilized component of an estate plan is a will. In simple terms, a will lets everyone know what you’d like to do with your assets once you’ve passed away. A will is how you would designate an executor. An executor is the person you put in charge of handling your affairs after you have passed. This may include probate court, tax fillings, distribution of assets, etc. Usually the executor is a family member or friend, however you may also select an attorney, bank, or other trusted advisor. The advantage of a will is that it can eliminate, or at least reduce, any uncertainty surrounding your final wishes.
2. Trusts
A trust is very simply a way to provide control over assets, either while you are still alive, and/or after you have passed away. Having assets in a trust (controlled by a trustee) allows you to dictate how and to whom your assets are distributed as well as the timing of those distributions.
There are lots of different types of trusts, but two basic types are, a revocable trust and an irrevocable trust. A revocable trust allows you to keep control of the assets in the trust, as well as the ability to change the trust, revoke the trust, or change the nature of the trust at any time. An irrevocable trust is, as the name implies, not able to be changed without the beneficiaries consent. And, the assets held by the trust are controlled by the trustee. Any assets owned by a trust can be passed to your beneficiaries without going through the probate process.
3. Power of Attorney
A power of attorney (POA), allows you to designate someone to act on your behalf in various situations. You can make a POA very broad-reaching, or very specific, all depending of course on the situation. A POA usually comes into play should your ability to take care of yourself decline. This component to a proper estate plan is important to everyone, however, it is especially important if you are single. With couples, the responsibility of taking care of someone falls to a spouse. However, if you’re single and haven’t designated anyone, the court will appoint someone to be your guardian. Once you pass away, the POA becomes obsolete, and the executor of your will is now the responsible party. Your POA and executor can be the same person.
4. Health Care Directive (Medical Directive)
Very similar to a POA, a healthcare directive gives someone control over making healthcare decisions for you. There are two main parts to a health care directive: a living will and a health care proxy. The living will tells your family what you’d like to have happen should you become terminally ill. A healthcare proxy gives someone the ability to make medical decisions for you if you are unable to make those decisions for yourself. Having a healthcare directive is a good way to eliminate any confusion or disagreement your family members may have about how to best handle your healthcare.
5. Beneficiary Designations
Any type of retirement plan (401k, 403b, etc.), Individual Retirement Account (IRA), or Life Insurance Policy offers you the ability to designate both primary and contingent beneficiaries. Usually, the primary beneficiary is a spouse, while the contingent beneficiaries are children. However, when going through your overall estate planning process, you can choose to designate any trusts that you have created as a beneficiary (either primary or contingent). One thing to keep in mind is that the beneficiaries come before the will, meaning that if you update your will, it’s a good idea to also review (and possibly update) your beneficiaries as well.
Hopefully, these 5 components of an estate plan make the process seem less daunting than it otherwise might be. So even if you’re not in the billionaire category, it is likely a good idea to review your situation, and begin to formulate or update your estate plan.
Brian L. Disher, CFP®
Director of Wealth Management
As the Director of Wealth Management, Brian’s role is all about relationships to ensure that every option is in place to help clients achieve their goals. He works closely with the team of private client advisors to consistently define and demonstrate personalized client service. He finds it gratifying to work with a group of people who share the same vision to provide a level of service and communication that builds relationships across generations.
The information contained within has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy. The opinions expressed are subject to change from time to time and do not constitute a recommendation to purchase or sell any security nor to engage in any particular investment strategy. Investment Advisory Services are offered through Greenwood Capital Associates, LLC, an SEC-registered investment advisor.
