Four Essentials of Estate Planning

Four Essentials of Estate Planning | Arbor Capital Management

Take Charge of Your Assets as You Plan for the Future

If you’re thinking about estate planning, chances are you’ve already spent many decades building the life you envisioned for yourself. You may have a large and loving family, or a network of close friends and causes that matter to you. Perhaps you’ve amassed wealth from savvy investments or well-tended savings. Maybe you’ve even grown a collection of artwork, rare books, or other prized possessions throughout the years.

The question, of course, is what happens to all of these things you’ve built once you’re gone? The answer lies in a thoughtful estate plan.

Do You Need to Begin Your Estate Plan?

Estate planning is a difficult topic, and no one wants to contemplate their own demise. Even if you feel ready to discuss your estate, your family members may be uncomfortable with the conversation. However, taking steps to solidify your financial goals now will save your family and friends the added emotional stress of having to imagine what you wanted. Instead of avoiding an uncomfortable topic, take charge of your assets and ensure your loved ones are prepared for the future through estate planning.

Keep in mind that estate planning isn’t just for wealthy people or those who have large families. Any person with goals beyond their own lifetime – and hope for the future – should consider planning ahead for the disposition of their assets.

There’s no right or wrong time to begin estate planning, but it’s common to think about it when you reach major milestones in life, like a change in marital status, having or adopting a baby, retiring, or losing a loved one.

If you’ve reached a point where you’re ready to begin, there are four main elements to consider when estate planning:

  • Healthcare Power of Attorney and Living Will
  • Financial Power of Attorney
  • Last Will and Testament
  • Establishing a Trust

We’ll discuss each of these in-depth below.

Element #1: Healthcare Power of Attorney and Living Will

 A critical step in estate planning is appointing a spouse, family member, or trusted friend to make healthcare-related decisions on your behalf, should the need arise. In the event you are no longer able to communicate your wishes, a legal document known as a healthcare power of attorney (HPOA) empowers a chosen individual to oversee your care and make necessary treatment decisions for you.

Alongside your HPOA, it’s smart to write up a living will. Also referred to as an advanced directive, it provides guidance about your medical care preferences with regard to things like life support and other medical interventions. Your HPOA can refer to your living will when making decisions on your behalf, particularly when questions arise. Having a living will means your wishes will be known even if you aren’t in a position to express them.

Element #2: Financial Power of Attorney

Another legal document you’ll want to consider is a financial power of attorney (FPOA). This document establishes who has the authority to make financial decisions for you if you become incapacitated. These responsibilities might include things like overseeing your investment portfolio, paying your mortgage or other bills, and handling other financial matters.

Along with this, you should make a list of all your banks and account numbers, all investment institutions with account numbers, lists of credit cards, utility accounts, and any other information to assist your chosen FPOA. Leave clear instructions as to how and when bills should be paid. It’s also a good idea to keep a list of your account passwords to assist your FPOA with access. (Don’t forget things like your Apple ID or other passwords connected to your phone or financial apps.)

Now, you might be thinking that your spouse or partner would automatically become the financial decision-maker for you if needed, but this is not necessarily the case. If you don’t have a legally established FPOA in place, an already complicated and difficult situation could end up in court.

Element #3: Last Will and Testament

This is probably the most commonly known element of an estate plan, and most people simply refer to it as a will. It outlines, in specific, what you own. It also provides a legal way to name who should receive particular assets upon your death. In essence, your last will and testament function like a roadmap for your loved ones, guiding others on how to handle your assets as they begin the difficult task of navigating the future without you.

If you feel comfortable with it, it may serve you to discuss the details of your will with trusted family members and even close friends. Naturally, your eventual death will be an emotionally distressing event for those who care for you. When you make your wishes clear during your life, you can avoid surprising anyone and circumvent potential conflicts and negative feelings that could be magnified by grief once you’ve passed.

This process doesn’t sound particularly cheerful, of course. And this is a big reason why only 40 percent of American adults say they have taken this critical step in estate planning. So, what happens if you die without a will in place? Well, this is known as dying intestate and it means the probate court must step in to distribute your assets – a process which can be both lengthy and costly for your heirs. This is yet another reason to have a valid, authenticated will in place.

Keep in mind that your will isn’t a “set it and forget it” document. It can and should be revised over the course of your life. For example, if you become a parent, it will become essential to update your will to reflect your wishes regarding the legal guardianship of your child, should you become incapacitated.

Element #4: Establishing a Trust

 Very much like a will, a trust allows you to specify your wishes for your estate after death. In specific, a trust establishes a fiduciary relationship among three parties:

  • The trustor
  • The trustee
  • The beneficiary

Here’s how the relationship works:

The trustor (that is, you, the owner of the assets) gives a neutral party known as the trustee the power to manage those assets and property on behalf of your beneficiaries. The trust provides specific instructions regarding inheritance and adds a level of protection for you, governing how and when your assets should be distributed. It also specifies how the assets can be used by your beneficiaries after your passing.

An important difference between a will and a trust is that, unlike a will, a trust is not required to go through probate. Typically, it cannot be contested, and it does not become part of the public record. Note, though, that a trust does not provide for the guardianship of minor children.

Another difference is that, while everyone should have a last will and testament, a trust is not necessary for all individuals. If you have a sizable estate (or concerns about the proper management of your assets after your death) a trust can be a beneficial tool for you.

Additional Considerations for Your Estate Plan

As you tackle the four essential steps above, it will be helpful to keep these considerations in mind, as well:

  • Make sure all your bank accounts have direct beneficiaries.
  • If you own a home, complete a Transfer on Death (TOD) deed, which can save your heirs thousands of dollars and your home won’t have to go through probate.
  • Adding a funeral planning declaration to your estate plan allows you to specify exact wishes for the disposition of your body and preferred funeral or memorial services.
  • Make sure your heirs are aware of any life insurance policies, and where they are located.
  • Ensure you have titles for all vehicles you own, including things like campers.

Final Thoughts on the Essentials of Estate Planning

Estate planning is important because it allows you to outline your wishes through clear, legal documentation. None of us knows what the future may hold, but taking the time to establish your estate plan provides peace of mind that your wishes will be met and your loved ones will be financially secure after your death.

At Arbor Capital, we recognize that it’s taken hard work and sacrifice to get to where you are today. We believe your financial planning should be met with rigor and openness, and that includes developing a thoughtful and intentional estate plan. If you are ready to discuss your plans for the future, please reach out to us today.

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