How to Make Your Estate Plan Stronger
Estate planning is a process designed to organize, optimize, and transfer your assets. With so many moving pieces, the process of developing an estate plan can be overwhelming and burdensome which causes many people to push it to the backburner. But waiting can cause more harm than good as it can lead to confusion and mistakes down the road.
Our Wealth & Trust Officers at First Dakota are here to help! Our team can help you create an estate plan that reflects your values and wishes without a huge headache. When it comes to crafting an estate plan, the best place to start is to simply begin!
Today, our team will walk you through the basic elements of an estate plan and how each piece enhances and strengthens it.
Create a will
A will is a legal document that outlines your wishes for distributing your assets after you pass away. It is a record of how you wish your property to be distributed and can instruct other stipulations for dividing your estate.
A will only goes into effect after you pass away and is subject to probate. Probate is simply a court-sanctioned, public process that oversees the execution of your estate. Many people wish to avoid probate if possible as it can be costly, time-consuming, and transcribes your estate proceedings to the public record.
A will is often the first thing that people associate with estate planning and yet few people prioritize creating one. According to Caring.com’s 2020 survey, only 47.9% of respondents 55 and older have a will which is down from 60% in 2019.
Why the decline?
The same survey found that the top reasons for not having basic estate planning documents were
Respondents hadn’t gotten around to it
Respondents felt that they didn’t have enough assets to justify creating a will
Estate planning should be a top priority as it gives you the opportunity to transfer your assets to the people or entity (like a charity) that mean the most to you. Without the proper documentation, your estate will be handled and divided by the courts.
Establish a trust
As we discussed in our previous article, a trust is a fiduciary agreement designed to protect your assets. Trusts are a wonderful addition to your estate plan as they provide more control, flexibility, and protection for your assets in terms of how they are transferred to your chosen beneficiary or beneficiaries.
Here is a quick overview of how trusts function. A trust is established by a grantor or the person who wishes to use the account as a vehicle to manage their assets during lifetime as well as to transfer assets at death. The assets are housed in a trust controlled by a third party trustee who can be a person or an institution like a bank. The trustee manages the assets in the trust and is responsible for transferring the assets to the chosen beneficiaries.
Once a trust is established, it is important to actively fund it. You can do so by retitling checking accounts, investment accounts, and deeds to any property you own to the name of your trust.
Why would you want to do this?
Trusts are an excellent vehicle for controlling your assets and can prove to be efficient in distributing an inheritance. There are other important benefits of a trust, namely that they avoid probate. This gives your estate and beneficiaries more privacy. It also avoids unnecessary court fees which can put a strain on the money you leave behind.
Unlike a will that is only valid after you pass away, a trust works while you are living, if you become incapacitated, and after death. Creating a trust is an important aspect of a strong estate planning strategy.
Name a Financial Power of Attorney and Medical Directive
A financial power of attorney (POA) is a legal document that grants a trusted agent (friend, family member, loved one) the authority to act on behalf of the principal-agent (you) in financial matters.
In essence, this document allows you to select a person to make financial decisions on your behalf should you become incapacitated. Establishing this provision is important for handling the financial aspects of your life like paying debts, taxes, fees, bills, and more. This person will be responsible for handling your affairs should you become incapacitated.
It is important to establish a financial POA as they will ensure that your financial responsibilities don’t fall through the cracks. If your financial POA is considered durable, the agreement remains in effect after you become incapacitated. But it is important to note that the agreement stops once you pass away.
A health care directive is similar to a financial POA in that the power-holder are able to make medical decisions on your behalf when you are unable to communicate those wishes yourself. It is important that you choose someone who will respect your wishes and want to make choices that you would make.
Before selecting someone to serve as your financial POA or health care power of attorney, be sure you talk with them. Outline the responsibilities along with how you would like them to carry out your requests and see if they would be a good fit for that role. You can appoint the same person for both roles, but that can often prove overwhelming, so choosing two like minded people who can work together is often a better choice.
Update your beneficiaries
A beneficiary is a person that receives a benefit or distribution from a will, trust, retirement account, or life insurance policy. It is important to note a beneficiary designation within a qualified retirement account or life insurance policy supersedes the terms of a will or trust.
This is a common estate planning error. Let’s take a look at an example.
Larry establishes his three children Betty, John, and Jerry as joint beneficiaries of his 1 million dollar IRA. Larry’s trust also names the kids as beneficiaries but stipulates that they not begin receiving distributions until they are each 45, 55, and 65 years old.
If Larry passes away when the kids are 42, 40, and 38 respectively, however, his 1 million dollar IRA would be automatically distributed to his children since they were listed as beneficiaries and the designation on an IRA outweighs the age rules in the trust.
Everyone’s estate planning needs are different based on their unique needs and state laws. Be sure to consult proper legal counsel in your state to determine the best plan for the assets you have accumulated.
Elect a guardian and trustee for your children
For new parents, selecting a guardian is an important step in the estate planning process--often the most important decision for their family! A guardian is a person who has a legal responsibility to care for a child or adult who can’t care for themselves. The guardian will assume all responsibilities of raising and caring for a child, making it crucial that you choose someone you trust who is willing and able to take on this type of care.
A trustee is someone who handles the financial responsibilities of a child. Often these roles are performed by the same person or a Corporate Trustee is selected to provide professional experience and provide fiduciary care. Be sure you choose someone who will be able to perform these duties should they need to.
It is important to have a conversation with your child’s potential guardian before making it legally binding. This is a big responsibility and you need to know if they are ready to assume those duties.
Take your time
All of your estate planning needs won’t be covered in one visit. With such a large process, it takes a lot of time, attention, and careful planning to get right. Be sure that you surround yourself with a trusted network of professionals like a Wealth & Trust Officer, estate planning attorney, tax professional, and more to ensure that your plan is representative of your needs and wants for your estate and legacy.
Our team at First Dakota Wealth & Trust is here to help you with creating an estate plan that is comprehensive and truly representative of your wishes for the future. Set up a call with us today to learn more about how we can help you.
First Dakota Wealth & Trust is the fiduciary investment department of First Dakota National Bank with trustee powers to serve clients during their lifetime, during incapacity and after death. We help clients develop a financial roadmap to help simplify their financial future.
Please note that neither First Dakota National Bank nor First Dakota Wealth & Trust Department, or its employees provide tax or legal advice. This is intended for informational purposes and is not intended to constitute legal or tax advice. Please consult your attorney and/or tax professional for advice related to your specific situation.